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By XE Market Analysis November 14, 2019 7:16 am
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    XE Market Analysis: North America - Nov 14, 2019

    Both the dollar and yen have seen fresh highs against a range of currencies, while the Australian dollar came under particular pressure following weak data out of Australia and China. The euro also posted fresh lows against most other currencies. All this came against a backdrop of sputtering global stock markets. The biggest movement among the main currencies has been AUD-JPY, which was showing a loss of nearly 1% heading into the New York interbank open. Safe-haven positioning also saw USD-JPY print a nine-day low at 108.56, while both EUR-JPY and AUD-JPY hit new one-month lows, with both amid their fifth consecutive day of declines. EUR-USD printed a one-month low at 1.0989. The euro also posted a new five-month low versus the pound, at 0.8550, while EUR-CHF hit a six-week low at 1.0863. AUD-USD hit a one-week low at 0.6782 and the AUD-NZD cross to a 10-week low, at 1.0625. The antipodean cross has declined by nearly 2% since the RBNZ unexpectedly refrained from cutting interest rates yesterday. USD-CAD matched the five-week high seen yesterday at 1.3268. In data, China's industrial production growth slowed sharply in October, to 4.7% y/y verses the median forecast for 5.4% growth, with investment growth falling to a record low. Chinese retail sales also underwhelmed, while preliminary Japanese Q3 GDP disappointed with growth of just 0.1% q/q, with a 0.7% q/q drop in exports shining a light on the impact of trade protectionism. Australia's October unemployment rate ticked higher, to 5.3% from 5.2%. UK retail sales data missed, and while German Q3 GDP beat, Q2 growth was revised lower.

    [EUR, USD]
    The euro has seen fresh lows against a range of currencies. German Q3 GDP gave the common currency a brief lift, with the headline rising 0.1% versus the 0.0% median forecast, though Q2 growth was revised lower. Eurozone employment growth, meanwhile, decelerated to 0.1% q/q, which together with weakness in asset investment in Germany suggests that companies remain cautious on the growth outlook. EUR-USD has oscillated on both sides of 1.1000 in the wake of the German GDP release, but earlier carved out a fresh one-month low at 1.0994. The euro has subsequently dipped to a fresh one-month low against the yen, at 119.43, and a five-month low versus the pound, at 0.8550, while EUR-CHF hit a six-week low at 1.0863. We retain a neutral-to-bearish view of EUR-USD. The U.S. economy is outpacing the Eurozone economy, while the EU also has the biggest concentration of negative-yielding debt in the world, contrasting with U.S. Treasuries, which provides the world's biggest and most liquid pool of risk-free assets with positive yields. 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 217-8 bps.

    [USD, JPY]
    The yen remained underpinned by safe-haven positioning, albeit moderate. USD-JPY printed a nine-day low at 108.62, while both EUR-JPY and AUD-JPY hit new one-month lows, with both amid a fifth consecutive day of decline. AUD-JPY declines have been particularly steep, with the cross showing a lows of nearly 1% just ahead of the New York interbank open. Global stock markets have remained in sputtering mode and data out of Asia today was negative. China's industrial production growth slowed sharply in October, to 4.7% y/y verses the median forecast for 5.4% growth, with investment growth falling to a record low. Chinese retail sales also underwhelmed, while preliminary Japanese Q3 GDP disappointed with growth of just 0.1% q/q, with a 0.7% q/q drop in exports shining a light on the impact of trade protectionism. Australia's October employment report also showed that unemployment rate ticking higher, to 5.3% from 5.2%, while the underemployed measure rose. 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 (eventually) 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 would 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 that "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]
    The pound has been trading mixed, holding steady against the dollar and yen while gaining on the euro and other currencies. Notably, the UK currency has ascended to five-month highs against the euro, which has been underperforming over the last week. Sterling markets were unperturbed by the CPI miss yesterday, with both UK yields and the pound reversing at least most of the declines seen in the immediate wake of the data release. UK October CPI, to recap, missed, 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. Bigger picture, Brexit delivered, as is looking likely, may start a process towards a devolution of the UK. Pro-EU Scotland would likely stage a second independence referendum, and even Northern Ireland (which is also pro-EU) may be at the beginnings of a course for unification with the Republic of Ireland.

    [USD, CHF]
    EUR-CHF printed a new five-week low at 1.0863. USD-CHF has also come under notably pressure in recent sessions, which has driven the pairing to nine-day lows. The low in EUR-CHF is a culmination of an accelerating two-week descent from levels above 1.1050. 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 what is a fourth straight day now, 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 is amid a third consecutive week of ascent, and has remained buoyant after printing a five-week peak at 1.3268 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 5 bps since the data release. At the same time, oil prices have turned flat-to-softer following a one-month up phase, removing what had been a supportive rug from under the Canadian dollar's feet. For now, USD-CAD looks likely to remain upwardly biased.

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