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By XE Market Analysis November 4, 2019 7:31 am
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    XE Market Analysis: North America - Nov 04, 2019

    The dollar and yen saw fresh lows against the dollar bloc currencies, the euro and many developing world currencies, albeit in the context of narrow ranges. This came against a backdrop of coursing risk appetite amid positive signals from the U.S.-China and U.S.-EU trade fronts and following last week's strong U.S. employment report and unexpected fourth consecutive month of improvement in China's Caixin manufacturing PMI survey. USD-JPY printed a four-day high at 108.46, remaining buoyant with global stock markets remaining in rally mode. Yen crosses also punched above their respective Friday highs, led by AUD-JPY and NZD-JPY out of the main currencies. EUR-USD matched last Thursday's peak in making 1.1175, although the pair remained within a 25-pip range in so-far typically narrow Monday trading ranges. Final Eurozone October manufacturing PMI readings were revised fractionally higher, but elicited little more than a short-lived lift in the euro. Most euro crosses lifted above their respective Friday highs. A no-deal Brexit avoided theme has given both the euro and pound a lift lately, though the possibility for a no-deal further down the track remains on the cards. USD-CAD printed a five-day low at 1.3130, with the Canadian dollar being floated by a backdrop of coursing risk appetite in global markets, similar to the other dollar bloc currencies, which has offset the jump in U.S. yields following the strong U.S. jobs data on Friday. AUD-USD breached above its Friday high on route to a 0.6925 peak, but remained shy of its Friday peak.

    [EUR, USD]
    EUR-USD has held within a 25-pip range in so-far typically narrow Monday trading conditions. Final Eurozone October manufacturing PMI readings were revised fractionally higher, but elicited little more than a short-lived lift in the euro. Despite the narrow ranges both EUR-USD and most euro crosses have managed to lift above their respective Friday highs. A no-deal Brexit avoided theme has given both the euro and pound a lift lately, though the possibility for a no-deal further down the track remains on the cards. The ECB is also taking a dovish tilt with Christine Laggard having taken up the reins, though this has been offset by here committed calls to Eurozone leaders for fiscal stimulus. As for the dollar, U.S. fundamentals appear relatively robust following Friday's solid U.S. employment report for October, though much will depend on how U.S.-China and U.S.-EU trade issues work out. Data this week includes the October U.S. services PMI and equivalent ISM non-manufacturing PMI, both of which are expected to show the important service sector improving from month-prior readings and remaining in expansion, with headline readings of 51.0 and 53.4 expected, respectively. EUR-USD last week logged the fourth up week out of the last five weeks, in large part reflecting broader euro buoyancy as the risk of a no-deal Brexit peeled away. Bigger picture, a sputtering Eurozone economy and a dovish ECB should keep EUR-USD's upside potential in check. We still class the pairing as being amid a bear trend that's been unfolding since early 2018, from levels around 1.2500. The trend has coincided with the 10-year Bund yield dropping from levels over 0.70% to the prevailing -0.350 % yield (a -0.739% low was seen in early September)

    [USD, JPY]
    USD-JPY has printed a four-day high at 108.43, remaining buoyant with global stock markets remaining in rally mode. Yen crosses have also punched above their respective Friday highs, led by AUD-JPY and NZD-JPY out of the main currencies. More of the same looks likely, so trend following is advised. Upbeat mood music continued to flow on the U.S.-China trade front. There are reports that U.S. Commerce Secretary Ross will meet with Chinese Premier Li, while Ross also said over the weekend that the U.S. may not have to impose tariffs on auto imports from the EU following "good conversations". This followed Friday's above-forecast U.S. jobs report and Caixin manufacturing PMI survey out of China, all of which floated the MSCI Asia-Pacific (ex-Japan) equity index to a 14-month high today. This follows fresh record highs being printed by the S&P 500 and NASDAQ on Friday. Yen softness saw USD-JPY lift to within a pip of Friday's high at 108.32 while AUD-JPY breached above its Friday peak in making 74.99. The AUD-JPY cross is up by 3.6% from month-ago levels.

    [GBP, USD]
    The pound racked up another up week last week, making it the fourth week out of the last five where a higher high has been set. From month-ago levels, the pound is the strongest performer out of the main currencies, up 5% against the dollar and by over 6% versus the euro. The gains reflect an unwinding in the pound's Brexit discount, with a Halloween no-deal Brexit scenario having been avoided. We estimate that the broad trade-weighted measure of the pound retains at about a 8-9% discount relative to levels prevailing ahead of the July 2015 Brexit vote, which has been pared back from lows of 15%-plus. The UK now finds itself with Brexit delayed for a second time and once again in a quagmire of political uncertainty, and we don't expect any further significant unwinding in sterling's Brexit discount as all options remain open with regard to how Brexit is resolved -- ranging from no deal to Brexit cancelled, depending on the results of the December-12 general election and any referendum after the election.

    [USD, CHF]
    EUR-CHF has been lifted recently by the diminishing in no-deal Brexit risks, which has been supportive of the euro. The cross has printed a two-and-a-half-month high at 1.1059.

    [USD, CAD]
    USD-CAD printed a five-day low at 1.3130, with the Canadian dollar being floated by a backdrop of coursing risk appetite in global markets, similar to the other dollar bloc currencies, which has offset the jump in U.S. yields following the strong U.S. jobs data on Friday. Taking a step back, USD-CAD is near to the midpoint of the range that's been seen over the last four-plus years.

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