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By XE Market Analysis March 20, 2019 7:09 am
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    XE Market Analysis: North America - Mar 20, 2019

    The Dollar has traded steady-to-firmer so far today. EUR-USD has been holding below the two-week high seen yesterday at 1.1361, and USD-JPY lifted to a two-day high at 111.69 in Tokyo before settling slightly lower. AUD-USD saw some volatility, dipping in Sydney trading concurrently with a 4%-plus tumble in iron ore prices (sparked by news of the reopening of a major mining operation in Brazil, with iron ore being the biggest Australian export) before recovering losses during the London AM session. The pair printed a three-session low at 0.7056, subsequently lifting to near net unchanged levels around 0.7090. EUR-JPY ascended to a two-week peak, at 126.74, and other yen crosses have also been buoyant amid underperformance in the Japanese currency. Sterling came under moderate pressure, though still continues to be holding up remarkably well, belying the state of constitutional crisis in the UK and associated Brexit uncertainty -- just nine days before the legally mandated day of departure from the EU. The Pound was showing losses of 0.3% versus the Dollar, and 0.4% to the Euro as of the late London AM session, though the UK currency is still showing about a 1.5% averaged gain versus the dollar, euro and yen from month-ago levels, and a gain of about 5% on the year-to-date. Markets are remaining sanguine to the risk for a no-deal scenario, although the risk of this cannot be ruled out. We still think no-deal will be avoided. Parliament could take over the Brexit process. As for Prime Minister May, while she has been using the threat of no-deal or a long delay in Brexit for political leverage, we don't that she -- who voted to remain in the EU in 2016 -- would allow a no-deal scenario to happen, even if she has to revoke Article 50 to stop Brexit. The Fed announcement on policy later today is also on the radar screen amid expectations for trimmed inflation forecasts and lower dot plots.

    [EUR, USD]
    EUR-USD has remained buoyant, near the two-week high seen yesterday at 1.1361. The dollar has steadied today after softening over the prior two days amid expectations for the Fed to trim inflation forecasts and lower dot plots at this week's FOMC meeting, which concludes later today. This follows last week's surprising benign inflation data out of the U.S., along with the data showing the second straight month of decline in manufacturing. We suspect the markets might be overly optimistic in terms of the dots for Fed funds futures to show no further hikes and, indeed, a cut as the next move. We doubt the FOMC would make such a big jump; recall at the December meeting the median dot showed two tightenings this year and another next year. Going from three to zero, with little change in the growth or inflation outlooks, seems like too large a step. If we're right, the dollar has potential to rally against the euro and most other currencies. EUR-USD has resistance at 1.1370-75, which encompasses the 100-day moving average.

    [USD, JPY]
    USD-JPY lifted to a two-day high at 111.69 while EUR-JPY ascended to a two-week peak, at 126.74. Other yen crosses have also been buoyant, with the Japanese currency having underperformed. One notable exception has been AUD-JPY, which dipped amid underperformance in the Australian dollar, which was seen concurrently with a 4%-plus tumble in iron ore prices (sparked by news of the reopening of a major mining operation in Brazil). Stock markets have mostly traded softer in Asia, which has seen the MSCI Asia-Pacific (ex-Japan) index pull back from six-month highs, although the softer yen has given Japanese exporter stocks a boost, seeing the Nikkei 225 index post modest gains. Markets have gone into pre-event risk mode ahead of the Fed's policy announcement today, having priced in a reaffirmation of the central bank's January dovish turn. There has been reports that China is pushing back against some U.S. demands in trade negotiations. U.S. Trade Representative Lighthizer and Treasury Secretary Mnuchin are due to travel to Beijing next week for the next round of high level talks, and most pundits are seeing scope for compromise with both sides eager to avoid prolonged economic damage that the dispute has evidently being causing.

    [GBP, USD]
    Sterling came under moderate pressure, though still continues to be holding up remarkably well, belying the state of constitutional crisis in the UK and associated Brexit uncertainty -- just nine days before the legally mandated day of departure from the EU. The Pound was showing losses of 0.3% versus the Dollar, and 0.4% to the Euro as of the late London AM session, though the UK currency is still showing about a 1.5% averaged gain versus the dollar, euro and yen from month-ago levels, and a gain of about 5% on the year-to-date. Markets are remaining sanguine to the risk for a no-deal scenario, although the risk of this cannot be ruled out. We still think no-deal will be avoided. Parliament could take over the Brexit process. As for Prime Minister May, while she has been using the threat of no-deal or a long delay in Brexit for political leverage, we don't that she -- who voted to remain in the EU in 2016 -- would allow a no-deal scenario to happen, even if she has to revoke Article 50 to stop Brexit. The Fed announcement on policy later today is also on the radar screen amid expectations for trimmed inflation forecasts and lower dot plots. The latest reports suggest that May is going to ask the EU for a short delay. She will attend the EU leaders' summit on Thursday. Brussels is reportedly set on waiting for greater clarity before agreeing to a delay, wanting the delay to have specific purpose rather than being a futile exercise in kicking the can down the road. A new referendum or a new general election are possibilities, the former being more likely than the latter.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.1300s, holding below the two-week high seen last week at 1.1385. 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 earlier in the month. 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."priate."

    [USD, CAD]
    USD-CAD recouped to a two-day high of 1.3345 after the sharp-but-brief dive yesterday to 1.3250. The low had been a product of stop-loss selling and speculative buying of Canada's currency as oil prices vaulted to fresh trend highs. Front-month WTI crude futures surged to a fresh four-month high shy of $60.0, extending the year-to-date gain to over 31%, which, if sustained, is a boon for Canada's terms of trade. USD-CAD is now trading near flat from week-ago levels, but remains down by 2.2% on the year-to-date. We expect the overall directional bias to remain to the downside. Resistance comes in at 1.3358-60.

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