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By XE Market Analysis November 13, 2019 7:44 am
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    XE Market Analysis: North America - Nov 13, 2019

    The dollar has been putting in a mixed performance so far today posting fresh highs versus the euro and Canadian dollar while losing ground to the yen and Swiss franc, which outperformed most other currencies on a safe-haven bid amid wobbling global stock markets, and the New Zealand dollar, which surged by over 1% after the RBNZ surprised markets by refraining from cutting interest rates following its policy meeting today. NZ money market futures had been implying odds of 75% for the central bank to cut the benchmark rate to a new record low of 0.75%, which was instead left at 1.00%. The central bank said that after two cuts this year there was no urgency to cut again. NZD-USD belted up from levels near 0.6330 to an eight-day high of 0.6418, while AUD-NZD plummeted to three-week lows. The yen printed new highs amid a risk-cautious sentiment in markets after President Trump disappointed expectations at his speech at the Economic Club of New York yesterday, leaving markets with a sense that the U.S. and China are continuing to struggle to finalized their partial "phase 1" deal. USD-JPY lifted posted a six-day low during the early part of Tokyo trading, at 108.87. EUR-JPY hit a one-month low, at 119.86, and AUD-JPY a 12-day nadir. The lows reflected safe-haven positioning into the yen. EUR-USD posted a new a one-month at 1.0999, while EUR-CHF was a notable mover in sinking quite sharply to one-month lows. USD-CAD has posted a fresh one-month peak at 1.3267, extending the pronounced gains the pairing has seen since the release of Canada's October employment report last Friday Sterling markets were unperturbed by the CPI miss, with both UK yields and the pound reversing at least most of the declines seen in the immediate wake of the data release.

    [EUR, USD]
    EUR-USD has been plying a narrow range below 1.1050 and above the one-month low seen last Friday at 1.1016, ebbing back towards the latter in the current phase. The euro has been under pressure over the last week. EUR-USD fell by over 1%, while EUR-CHF and EUR-GBP forayed into three-week low terrain. The common currency also saw an eight-week nadir against the Australian dollar last Thursday. EUR-USD's price action, which produced a "bearish engulfing" week last week on the charts, has wrong-footed a number of bank analysts. JPMorgan, for instance, had been "exploring opportunities" to go long the euro versus the dollar having been encouraged by the Eurozone posting a record annual surplus on its basic balance (a measure that includes current account, net equity and net foreign direct investment flows), although in JPM's defence they had said this view was a cautious one due to relative weakness in the Eurozone economy. The heaviness in the euro has also persisted after data showed that the German economy, particularly its stricken manufacturing sector, looks to have steadied. The fact is that the U.S. economy is outpacing the Eurozone economy, which was brought into sharp focus by data over the last week or so (the solid U.S. October jobs report, an expansion in October non-manufacturing and unexpectedly tight initial claims data). The EU also offers the biggest concentration of negative-yielding debt, contrasting to U.S. Treasuries, which provides the world's biggest and most liquid pool of risk-free assets (with positive yields to boot). EUR-USD has been amid a bear trend that's been unfolding since early 2018, from levels around 1.2500. The trend has coincided with the 10-year T-note versus 10-year Bund yield differential having narrowed from 278 bps to the current 218 bps. We expect the trend to persist.

    [USD, JPY]
    The yen took a rotation lower during pre-Europe trading in Asia as stock markets steadied after wobbling yesterday. A report in Politico saying that EU officials are expecting President Trump to confirm that he will delay hiking tariffs on EU cars and auto part imports for another six months, according to an EU source, gave investor spirits a boost after the president had said over the weekend that the media had exaggerated U.S. willingness to roll back tariffs on China. Trump is scheduled to speak on trade before the Economic Club of New York today, where markets will be on tenterhooks, looking for confirmation of the EU tariff story and a positive update on the China trade front. This backdrop saw Japan's Nikkei 225 finish up by 0.8%, which is its biggest gain in a week, while the MSCI Asia-Pacific (ex-Japan) index rose 0.5%, after dropping 1.2% yesterday. The yen concomitantly saw the safe-haven positioning of yesterday unwind. USD-JPY lifted from sub-109.0 levels and above yesterday's high in making a peak at 109.29. This swings the five-month high seen last week at 109.48 back into scope. Yen crosses also traded firmer as the Japanese currency weakened. The biggest directional driver of the yen is likely to remain the ebb and flow of risk appetite in global markets (there is causation behind this correlation), and so developments on the U.S.-Chine trade front will be front and centre. Assuming the "phase 1" deal comes to fruition, and with the U.S. economy enjoying what looks like a goldilocks economy -- growth slower, but still holding up, and inflation remaining benign -- then more upside will likely be seen in USD-JPY. In Japan, "Abenomics" has been getting a dusting down. Japanese PM Abe last week pledged a renewed push of fiscal stimulus, while BoJ Governor Kuroda had earlier in the week reaffirmed the central bank's commitment to monetary easing to achieve its 2% inflation target (he admitted "it's taking time"). Regarding Japan's disinflation quagmire, there is a theory that QE, or QQE with yield curve control in Japan's case, is backfiring in the sense that it fosters excess capacity, thereby generating deflationary forces.

    [GBP, USD]
    Sterling markets were unperturbed by the CPI miss, with both UK yields and the pound reversing at least most of the declines seen in the immediate wake of the data release. Cable has since settled around the 1.2850 mark, near net unchanged on the day. The pound is also near net unchanged levels against the euro and other currencies, heading into the New York interbank open. UK October CPI, to recap, missed to the downside, at 1.5% y/y, the lowest rate seen since November 2016 and follows 1.7% in September. The median forecast had been for a decline to 1.6%. The BoE forecast in its November Inflation Report that CPI would dip to a base of 1.2% in Q2 2020, so the weakness in the October figure won't be much of a surprise to policymakers. Focus remains on political campaigning in the UK into the December-12 general election. Politico's poll tracker shows the Conservatives now command 39% support, up 3 points over the last two weeks and up from 28% at the time Johnson took over from Teresa May in late July. With the Brexit Party having backed down, the Conservatives are likely to see their lead strengthen, and they now look well positioned to win the election and return to Parliament with a majority. That in turn implies Brexit being implemented in January. The main threat to Johnson is a possible coalition between Labour and the LibDems, which currently have a combined support tally of 44%. Tactical pacts between smaller pro-EU parties will also be aiming to counter the pro-Brexit vote.

    [USD, CHF]
    EUR-CHF has dropped for a third consecutive day, producing a one-month low of 1.0909, which is a culmination of an accelerating two-week descent from levels above 1.0050. A combo of broader euro losses and franc outperformaance have been at play. EUR-USD has hit one-month lows, and EUR-GBP is pressing at five-month lows, while USD-CHF is down for a third straight day, and AUD-CHF, among other franc crosses, have also come under pressure. A combo of euro bearishness and risk-off positioning has been pressing EUR-CHF lower. The two-and-a-half-year low seen in early September at 1.0811 provides a downside reference point.

    [USD, CAD]
    USD-CAD has remained buoyant after posting a one-month peak at 1.3257 yesterday. The high extended the pronounced gains the pairing has seen since the release of Canada's October employment report last Friday, which disappointed and caused a reappraisal in BoC monetary policy expectations. The 10-year U.S. T-note yield advantage over the 10-year Canadian benchmark has widened by over 6 bps since the data release. At the same time, oil prices have turned flat-to-softer following a one-month up phase. For now, USD-CAD looks likely to remain upwardly biased.

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