Home > XE Currency Blog > XE Market Analysis: North America - Nov 05, 2019

AD

XE Currency Blog

Topics6786 Posts6831
By XE Market Analysis November 5, 2019 7:33 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4710
    XE Market Analysis: North America - Nov 05, 2019

    The dollar has been trading mixed against a backdrop of coursing risk-on positioning, losing ground to the dollar bloc while gaining on the yen, which underperformed. Sovereign bonds came under pressure as the main Asian and European stock indices rallied to fresh major-trend highs. USD-JPY rose to a five-day high at 108.89. EUR-JPY also made a five-day peaks, at 121.12, while AUD-JPY ascended into three-month high terrain. Other yen crosses also gained. Maintaining investor spirits were the PBoC cutting its one-year medium-term lending facility (MLF) rate by 5 bps for the first time since early 2016, and an FT report that the Trump administration was considering removing some tariffs on Chinese goods, which is something that Reuters sources have been saying Beijing has been pushing for. Markets are also anticipating U.S. non-manufacturing survey data for October, due later today, to rebound from the three-year low seen in September. This would follow the strong U.S. October jobs report and the backdrop of the Fed's three precautionary rate cuts, making for potent mix of risk-on ingredients. Elsewhere in forex markets, EUR-USD printed a six-day low at 1.1112 in what is now the pair's fourth day trading on a 1.11 handle. The pound lifted after the release of an above-forecast October services PMI out of the UK, which came something of a relief given the recent slowing in the in the UK economy. Cable posted a high at 1.2917, remaining comfortably below the recent trend high at 1.3012. USD-CAD posted a six-day low at 1.3115, while AUD-USD rallied by over 0.6%, coming within a whisker of the three-week peak that was seen last week at 0.6929. The RBA left rates on hold today while leaving the door open to further cuts if needed.

    [EUR, USD]
    EUR-USD printed a six-day low at 1.1112 in what is now the pair's fourth day trading on a 1.11 handle. The pair has been losing upside momentum after rallying out of sub-1.0900 levels in early October. The euro has seen signs of weakness against other currencies, although EUR-JPY has been buoyed by yen underperformance. EUR-CHF, for instance, edged out an 18-day low at 1.0986 in late trade yesterday. 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, while the protracted political uncertainty in the UK is having a deleterious economic on both sides of the Channel. The ECB is also taking a dovish tilt with Christine Laggard having taken up the reins. On the dollar side of the balance, with regard to EUR-USD, markets are anticipating U.S. non-manufacturing survey data for October, due later today, to rebound from the three-year low seen in September. This would follow the strong U.S. October jobs report (despite the General Motors strike) and the backdrop of the Fed's three precautionary rate cuts. Against a sputtering Eurozone economy and a dovish ECB, the upside potential of EUR-USD should be kept 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 -0.325 % yield (a -0.739% low was seen in early September).

    [USD, JPY]
    The yen continued on a softening tack amid a backdrop of continued risk-on positioning in global markets, which have seen sovereign bonds come under pressure and stock markets rally. The main equity indices in Asia hit fresh trend highs today, while the Dow, S&P 500 and Nasdaq all hit new record highs on Wall Street yesterday. USD-JPY rose to a five-day high at 108.849. EUR-JPY also made a five-day peaks, at 121.12, while AUD-JPY ascended into three-month high terrain. Other yen crosses also gained. Maintaining investor spirits were the PBoC cutting its one-year medium-term lending facility (MLF) rate by 5 bps for the first time since early 2016, and an FT report that the Trump administration was considering removing some tariffs on Chinese goods, which is something that Reuters sources have been saying Beijing has been pushing for. Markets are also anticipating U.S. non-manufacturing survey data for October, due later today, to rebound from the three-year low seen in September. This would follow the strong U.S. October jobs report (despite the General Motors strike) and the backdrop of the Fed's three precautionary rate cuts, making for potent mix of risk-on ingredients.

    [GBP, USD]
    The pound lifted after the release of an above-forecast October services PMI out of the UK, which came something of a relief given the recent slowing in the in the UK economy. Last week was the fourth week out of the last five where a higher high was set. From month-ago levels, the pound is the strongest performer out of the main currencies, up by over 4.5% against the dollar and by over 6% versus the yen, reflecting an unwinding in the pound's Brexit discount, with a Halloween no-deal Brexit scenario having been avoided last week. 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 that were seen in mid August. 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. PM Johnson's Tory party is presently indicated by Politico's poll tracker to have support of 38%, which is 1 point up on last week and 3 points up from two weeks ago. The Tories had been polled at just 20% back in late May, before Johnson picked up the reins of prime ministership. The rise in the Tories has been concomitant with a 12 point ebb in support for the Brexit party. At the moment, support is sufficient for the Tories to win with a majority in the House of Commons, though much may depend on how effective anti-Brexit tactical voting pacts will be among the smaller parties.

    [USD, CHF]
    EUR-CHF edged out an 18-day low at 1.0986 in late trade yesterday, before rebounding back above 1.1000. The cross is up from the two-and-a-half-year low seen in early September, reflecting a more buoyant euro, which has been seen as a consequence of the UK avoiding a no-deal Brexit scenario last week. EUR-CHF is now lacking direction after receding from the three-month peak that was set at 1.1059 in mid October.

    [USD, CAD]
    USD-CAD has remained heavy, today matching the six-day low that was seen yesterday 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.

    Paste link in email or IM