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By XE Market Analysis January 17, 2020 7:25 am
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    XE Market Analysis: North America - Jan 17, 2020

    The yen posted fresh lows once again as risk appetite continued to course through global markets. The MSCI all-country world equity index touched fresh record highs, even though Chinese markets sputtered somewhat. An above-forecast 6.9% y/y rise in China's industrial production helped maintain the risk-on times, which followed a solid round of U.S. data releases yesterday and some strong corporate earnings results. USD-JPY rallied to a fresh eight-month peak at 110.28. Yen crosses also mostly remained firm. CAD-JPY pegged an eight-and-a-half month peak, although EUR-JPY drifted lower. AUD-USD rebounded back above 0.6900 after dipping to a two-day low at 0.6884. The Aussie dollar hasn't been performing as well as it might in the context of the strength in global equity markets and the good vibes coming from the trade negotiation between the U.S. and China this week. Recent data has been showing that the domestic economy is amid a consumer-led slowdown, which is being exacerbated by the worst-in-decades wildfires. Australian interbank cash rate futures imply a 56% probability for the RBA to cut interest rates by 25 bp at its February-4 policy meeting, up from the 47% odds that were being implied at the start of the week. The Swiss franc remained buoyant but off yesterday's trend highs, which were the product of a precipitous rally following the logic-defying decision by the U.S. to add Switzerland to its list of currency manipulators earlier in the week. EUR-USD posted a three-day low at 1.1106, dragged lower by selling in Cable following disappoint retails sales figures out of the UK, which showed an unexpected 0.6% m/m contraction against a median forecast for a 0.5% m/m rise, with November figures also revised lower. Cable dove by nearly 80 pips in making a post-data low at 1.3040.

    [EUR, USD]
    EUR-USD has posted a two-day low at 1.1119 following little more than a 15-pip dip. The pair was dragged lower by selling in Cable following disappoint retails sales figures out of the UK. The dollar itself has put in a steady-to-firmer phase, with yesterday's robust set of data out of the U.S. having injected a measure of buoyancy back into the currency. Bigger picture, EUR-USD has been trending lower since early 2018, dropping from levels near 1.2500 and posting a 32-month low at 1.0879 in early October, the current nadir of the trend. Momentum has faded with the Fed having backed out of its tightening cycle after hiking rates three times last year. The ECB, meanwhile, remains entrench in a policy wait-and-see mode. Next focus today is on U.S. production and consumer sentiment data, along with a batch of Fed speakers, which on net we don't anticipate being neither bullish or bearish for the dollar.

    [USD, JPY]
    The yen posted fresh lows once again as risk appetite continued to course through global markets. The MSCI all-country world equity index touched fresh record highs earlier, even though Chinese markets have sputtered somewhat and momentum appears to have waned a little. An above-forecast 6.9% y/y rise in China's industrial production helped maintain the risk-on times, which followed a solid round of U.S. data releases yesterday and some strong corporate earnings results. USD-JPY rallied to a fresh eight-month peak at 110.28, marking the eighth day out of the last 10 where the pairing has gained. Yen crosses also remained firm. CAD-JPY pegged an eight-and-a-half month peak, and while EUR-JPY and AUD-JPY remained off their respective trend highs from yesterday, both are higher on the day. We retain a bullish view of USD-JPY. The U.S. is enjoying what looks like a goldilocks economy -- growth slower, but still holding comfortably in positive expansion with inflation remaining benign -- while the risk-on vibe in global markets should maintain Japan's yield-hungry investors' confidence in foreign investments. The BoJ's next policy meeting is up next week, where a no-change decision is widely anticipated, though the central bank is also expected to lift growth estimates as a consequence of the U.S.-China trade deal and de-escalation in Mideast tensions.

    [GBP, USD]
    Sterling turned lower on a weak UK retail sales outcome in December data, which showed an unexpected 0.6% m/m contraction against a median forecast for a 0.5% m/m rise, with November figures also revised lower. This follows the sub-forecast December CPI outcome, of 1.3% y/y, and underwhelming November industrial production and GDP data. Cable dove by nearly 80 pips in making a post-data low at 1.3040, while EUR-GBP popped from sub-0.8500 levels to a peak at 0.8533. The data will maintain expectations for the BoE to cut the repo rate by 25 bp as soon as the January-30 Monetary Policy Committee meeting. The retail sales figure is particularly disappointing as it incorporated Black Friday sales and the Christmas period, and with monthly sales having been flat or negative since July. We still think the BoE will refrain from cutting rates this month, and instead opt to up the dovish guidance. Policymakers will still be looking to see the full impact that the lifting of Brexit and political fog has has since the election in mid December, especially with the global economy looking to be holding up.

    [USD, CHF]
    EUR-CHF lifted back above 1.0750 after yesterday hitting a 33-month low at 1.0732, with the franc having come off the boil after rallying precipitously following the logic-defying decision by the U.S. to add Switzerland to its list of currency manipulators earlier in the week. The U.S. move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index). The U.S. argues that Switzerland needs a more expansive fiscal policy. Divergence in the forex markets two principal safe haven currencies, the franc and the yen has been notable. The CHF-JPY cross has been trading at 13-month highs after rallying by almost 5% from levels seen in late November.

    [USD, CAD]
    USD-CAD has remained heavy after printing a five-day low yesterday at 1.3032. Buoyant global stock markets and, more particularly, gains in oil prices after a period of weakness, have given the Canadian dollar an underpinning. More of the same looks likely.

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