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By XE Market Analysis March 13, 2019 7:01 am
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    XE Market Analysis: North America - Mar 13, 2019

    The Pound has been outperforming, and was showing a 0.6% gain on the Dollar heading into the New York interbank open, and a similar magnitude of advance against the Euro and Yen, among other currencies. On factor at play seems to be the fact that UK Prime Minister May is looking secure in her position, despite the resounding second defeat of her Brexit deal yesterday. She can't be subject to a confidence motion having recently survived one, and she looks to be retaining the pragmatic support of most members of her Tory-DUP minatory government. The Eurosceptic Brexiteer group, instrumental in her deal being voted down yesterday, are trying to revive interest in the Malthouse Compromise, which advocates redrafting the Irish backstop and a three-year transition period. This could have some potential in a modified form, as it had been supported by both Europhiles and Eurosceptics in the Tory party, especially as it tallies with the EU's desire to avoid the risk of perennially rolling short-term extensions in the Brexit process. If it flies, the UK still might leave the EU on March 29, perhaps with a technical delay (to allow time to pass necessary legislature). Also, today's parliamentary vote on whether to leave the EU without a deal is all but a certainty to fail, and tomorrow's vote on delaying the Brexit process is all but certain to pass. Outside Brexit, EUR-USD has been consolidating slightly off the four-session higher seen yesterday at 1.1305, which was a product of Dollar weakness following benign U.S. CPI data. USD-JPY has been mired in a narrow range in the lower 111.0s.

    [EUR, USD]
    EUR-USD has been consolidating slightly off the four-session higher seen yesterday at 1.1305. The high was the product of a weaker Dollar, which declined concomitantly with Treasury yields following more benign than expected CPI data ot of the U.S., which should keep the Fed on sidelines. EUR-USD is near flat versus levels seen a week ago, recouping the losses seen following last Thursday's unexpected ECB decision for another blast of TLTRO lending. Last Friday's U.S. jobs report disappointed bigly at the headline level, but components were much better while the low jobs number can be largely attributed to an outsized weather hit through the BLS survey seek, especially in the goods sector overall and construction in particular. The monthly aggregates for February should prove stronger than the data from the BLS survey week, and we expect a solid 230k March payroll bounce as weather distortions are reversed. Overall, we still retain a bearish view of EUR-USD given the relative health of the U.S. economy and with the ECB having taken an actual easing action as opposed to the Fed's pause and continued tightening via the post-QE balance sheet roll-off. EUR-USD has resistance at 1.1317-20, which encompasses the prevailing situation of the 20-day moving average.

    [USD, JPY]
    USD-JPY has been mired in a narrow range in the lower 111.0s, consolidating losses seen following yesterday's U.S. CPI data, which at a headline 1.5% y/y, is the lowest in 28 months and pushing the 10-year Treasury yield to 10-week lows. This coupled with flagging stock markets should keep the bias toward the downside for now, even though data showed Japanese machinery orders contracted at the quickest rate in four months. Also in the news mix has been Japan's Regional Banks Association, which criticised the BoJ's ultra-loose monetary policies for causing side effects in financial intermediation and bond market functionality. Yen crosses have been mixed, with EUR-JPY near four-day highs and AUD-JPY having traded softer, posting two-day lows. USD-JPY has resistance at 111.40.

    [GBP, USD]
    The Pound has been trading firmer in the wake of the UK Parliament's resounding rejection of Prime Minister May's Brexit deal, with the currency showing an averaged 0.3% advance on the dollar, Euro and Yen on the day (as of the late London AM session), and gains of slightly more than this from levels that were prevailing ahead of the vote. Today's vote on whether to leave the EU without a deal is all but a certainty to fail, and tomorrow's vote on delaying the Brexit process is all but certain to pass. A statement from the EU has upped the ante by saying that the risks of a no-deal scenario is now "significantly" higher while demanding a "credible justification" for delaying. Despite the blows that UK Prime Minister has received, her position is secure as a confidence vote in her leadership can't be tabled for another year (having recently survived one) while Labour's machinations for a general election via a confidence vote on the government won't likely fly as the Tory-DUP governing alliance has the votes to prevent it. Parliament is also in position to wrest control of Brexit given that there looks to be sufficient cross-party support for a soft version of Brexit, and, less assuredly, another referendum (although this may be starting to look attractive to members). The Eurosceptic Brexiteer group, which was instrumental in the deal being voted down yesterday, are betting that the concessions EU gave on Monday may not be its final offer, despite what Brussels has insisted. This group is trying to revive interest in the Malthouse Compromise, which advocates redrafting the Irish backstop and a three-year transition period. This could have some potential in a modified form, as it had been supported by both Europhiles and Eurosceptics, especially as it tallies with the EU's desire to avoid the risk of perennially rolling short-term extensions in the Brexit process. The EU has made it known that it would be open to a length delay, which would buy time to work on future trading terms and arrangements while bypassing the need for an Irish backstop.

    [USD, CHF]
    EUR-CHF has consolidated near the two-week high seen yesterday at 1.1385, buoyed by the rebound in EUR-USD. The cross has continued on a relatively choppy path, the latest phase of which have been the current rebound after sharp Euro declines following the ECB's lending move last Thursday. The cross has been seeing relatively high volatility since the start of the year, often times characterized by bouts of pronounced underperformance in the Swiss franc that have often been accompanied by talk/suspicions of SNB intervention. SNB vice president, Zurbruegg, said recently 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 declined for four consecutive session, this time posting a two-week low at 1.3350. This continues a downside bias that has been imparted since last Friday's U.S. and Canadian employment reports, which came in with respective worse-than and better-than headline readings. Rekindled oil price gains have also been giving the Loonie an underpinning. The Canadian currency has more than recovered losses seen after last week's dovish turn by the BoC, which stated at its policy review that there is "increased uncertainty about the timing of future rate increases." USD-CAD resistance comes in at 1.3420, and support at 1.3344-47.

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