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By XE Market Analysis January 30, 2019 7:35 am
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    XE Market Analysis: North America - Jan 30, 2019

    The Dollar has traded near net flat versus the Euro and Yen, while losing modest ground to the Pound, which managed to recoup some of the Brexit-related losses seen during the NY PM session yesterday, and the Australian Dollar, which has been the day's outperformer. The antipodean currency benefited from perkier than expected Q4 CPI, which rose 0.5% y/y, and with Australian iron ore miners benefitting from the reduced Brazilian supply following last week's Vale mining disaster. AUD-USD rallied by over 0.7% in printing a 12-day high at 0.7204. EUR-USD, meanwhile, settled in the lower 1.1400s, consolidating a recent run higher. A pre-London bid saw yesterday's two-week peak at 1.1450 retested, but the move faltered. Eurozone data have been mostly on the soft side of expectations, including the January Eurozone ESI economic confidence survey, which fell to a 106.2 headline reading after 107.0 in the month prior, though German economic confidence unexpectedly rose. USD-JPY has traded within a 25 pip range so far today, in the low-to-mid 109.0s. Stocks markets have been buoyed by a near 6% surge in Apple shares after the global tech bellwether reported sharp growth in its services business, but there still remains a healthy degree of wariness in market sentiment with participants waiting on the outcome of the current round of trade talks between the U.S. and China. Cable lifted to around the 1.3100, still comfortably off last week's trend high at 1.3217 but up from the post-parliamentary-votes-low at 1.3055.

    [EUR, USD]
    EUR-USD has settled in the lower 1.1400s, consolidating a recent run higher. A pre-London bid saw yesterday's two-week peak at 1.1450 retested, but the move faltered. Eurozone data have been mostly on the soft side of expectations, including the January Eurozone ESI economic confidence survey, which fell to a 106.2 headline reading after 107.0 in the month prior, though German economic confidence unexpectedly jump. EUR-USD is now trading moderately to the north of the midway point of a broadly sideways range that's been unfolding for over two months now. The low over this period is 1.1215 and the high is 1.1570. What's curtailing the scope for downside progress is the relatively neutral outlook for Fed policy, while the evident slowing in the Eurozone economy is at the same time curtailing upside potential. We expect and overall sideways pattern to continue to unroll. Support comes in at 1.1385-87, and resistance at 1.1486-88.

    [USD, JPY]
    USD-JPY has traded within a 25 pip range so far today, in the low-to-mid 109.0s. Most Yen crosses have been similarly directionally challenged, though AUD-JPY was an exception, rising over 0.5% to a two-day peak at 78.71. Stocks markets have been buoyed by a near 6% surge in Apple shares after the global tech bellwether reported sharp growth in its services business, while it's CEO Tim Cook, who is in regular contact with President Trump, added that trade tension between the U.S. and China has been easing in January. There still remains a healthy degree of wariness in market sentiment, however, with participants waiting to see whether there will be a breakthrough in the current round of trade talks between the U.S. and China, and waiting on Fed policy guidance, with the central bank concluding today its two-day FOMC meeting, with most expecting caution to prevail given the data blind spots (a consequence of the partial government shutdown). Brexit concerns have also ratcheted up. A Reuters poll of hundreds of economists from around the world last week found a consensus view that a global slowdown is under way, and would sharpen if there was an escalation in the U.S.-China trade war. Reuters also highlighted that the Baltic Dry Index, a proxy of global economic health, has nearly 50% since mid 2018. We see risk for fresh USD-JPY declines should global stock markets turn lower again. The pair has resistance at 110.00-05.

    [GBP, USD]
    Sterling has rebounded moderately, pushing Cable back around the 1.3100 level, still comfortably off last week's trend high at 1.3217 but up from the post-parliamentary-votes-low at 1.3055. The UK Parliament rejected two amendments that would have delayed Brexit in the event a withdrawal deal was not struck by mid February, but Parliament also voted for an amendment that declares its opposition to a no-deal Brexit, which although nonbinding, was the catalyst for the leader of the Labour opposition, Jeremy Corbyn, to now talk with the prime minister, having hitherto refused to do so, suggesting there is hope for a cross-party consensus being formed on an alternative withdrawal plan. Parliament additionally voted for Prime Minister May to return to Brussels to try and win a concession on the Irish backstop -- but this has been promptly rejected by the European council president, Tusk, and other key EU leaders. We continue think a no-deal Brexit will be avoided. While May, who voted for the UK to remain in the EU at the referendum in 2016, and her allies have been utilizing the threat of a chaotic no-deal exit for negotiating leverage, we think she, her government and Parliament, will ultimately ensure a no-deal scenario doesn't become a reality. Unless the EU concedes on the Irish backstop (very unlikely), or unless Parliament musters up sufficient consensus for an alternative Brexit plan (possible, but looking like a stretch), a new referendum would likely be the destination. Any sure sign that a no-deal Brexit is off the table would likely spark a potentially significant rally in the pound.

    [USD, CHF]
    EUR-CHF clocked a 10-week high at 1.1394. This extends a phase of relatively high volatility that the franc has seen, which has seeing several periods of pronounced underperformance, which have often been accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said last week that "current monetary policy is the right one and we will continue to with it for some time." He said that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario. SNB vice president, Zurbruegg, also said last week that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate."

    [USD, CAD]
    USD-CAD has settled in the mid 1.3200s, up from the 18-day low seen at 1.3202 on Monday. The pair has resistance at 1.3311-12. Much will depend on whether there is any breakthrough, or at the least significant thawing, in U.S.-China trade relations at this week's talks. Any good news would likely spark outperformance in the Canadian currency. GDP for November (Thursday) is the only highlight on the Canadian calendar this week. The economy is on track to contract 0.1% in November (m/m, sa) as the sharp decline in oil prices materially impacted the economy.

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