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By XE Market Analysis November 19, 2019 7:22 am
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    XE Market Analysis: North America - Nov 19, 2019

    The dollar traded without direction, on net, while the yen weakened moderately during the London morning, concomitantly with rising equity markets in Europe. The Japanese currency still remained above recent lows, having firmed yesterday in the wake of the CNBC report yesterday citing Chinese government sources saying that Beijing is pessimistic about reaching a deal with the U.S. USD-JPY dipped under Monday's low in making a nadir at 108.46 before recouping to the upper 108.0s. Yen crosses saw a similar price action. Helping mollify market anxieties about the evidently difficult talks between the U.S. and China was news the Trump administration granted an extension for U.S. companies to do business with blacklisted Chinese telecoms group Huawei, along with news that Japan passed a limited trade deal with the U.S. (albeit leaving auto tariffs still in question). Elsewhere, the narrow trade-weighted USD index (DXY) settled in a narrow range after declining for three consecutive trading days through to yesterday. The index hit a two-week low yesterday at 97.68, and was sitting at 97.84 ahead of the New York interbank open. EUR-USD concurrently settled around 1.1065-70 after yesterday printing a 12-day high at 1.1090. Sterling retraced about a half of the rise seen yesterday versus both the dollar and euro. Cable ebbed to 1.2930, down from the four-week high seen yesterday at 1.2985, while EUR-GBP lifted to 0.8560, up from yesterday's six-month low at 0.8521. USD-CAD posted an 11-day low at 1.3190 in what is now a fourth consecutive trading day of decline. AUD-USD rebouned above 0.6800 after posting a four-day low at 0.6774. The low was set after the minutes to the RBA's early November meeting showed policymakers "agreed a case could be made" for another cut in the 0.75% cash rate given unwelcome weakness in wages growth and inflation.

    [EUR, USD]
    EUR-USD settled around 1.1065 after yesterday printing a 12-day high at 1.1090. The high was a product of dollar weakness on a news report that the Beijing is having doubts about whether a deal on trade can be reached with the U.S. EUR-USD would need to reach the finish line on Friday above 1.1050-51 to rack up a second consecutive week of advance. The pairing has been chopping around 1.050 since early August, ranging from 1.0879 to 1.1179 over this period. The low marked a two-and-a-half year trough, the culmination of a bear trend that's been unfolding since early 2018, from levels around 1.2500. Momentum of this trend has been waning with the Fed having cut interest rates three times since late July, though markets have now priced out further Fed easing. The CME's FedWatch tool now shows a 2.2% odds are being factored for a 25 bp hike at the December FOMC, having shifted from odds of over 20% for a rate cut at this meeting that were being factored before the release of the unexpectedly robust October employment report (released on November 1). The Fed's measure of the dollar's broad trade-weighted dollar is at near three-year highs. A continuation of dollar firmness would likely keep EUR-USD's overall bias to the downside. Both incoming U.S. data and the Fed minutes on Wednesday are likely to to bolster the Fed on hold view.

    [USD, JPY]
    The yen pared recent losses in the wake of the CNBC report yesterday, citing Chinese government sources saying that Beijing is pessimistic about reaching a deal with the U.S. USD-JPY dipped under Monday's low in making a nadir at 108.46 before recouping some as European stock markets managed to rise. Yen crosses saw a similar price action. The biggest directional driver of the yen will 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 earlier in the month pledging a renewed push of fiscal stimulus, while BoJ Governor Kuroda reaffirmed the central bank's commitment to monetary easing to achieve its 2% inflation target (he admitted that "it's taking time").

    [GBP, USD]
    Sterling has taken a step back today after taking two steps upward yesterday, with the currency having retraced about a half of the rise seen yesterday versus both the dollar and euro. Cable has ebbed to 1.2930, down from the four-week high seen yesterday at 1.2985, while EUR-GBP has lifted to 0.8560, up from yesterday's six-month low at 0.8521. There doesn't appear to have been a data or news catalyst, while a just-released less-worse-than-expected CBI industrial trends report for November won't likely have much impact. Political campaigning is in full swing in the UK ahead of the 12-December election. The latest update on Politico's poll tracker has support for the Labour Party shifting up a point to 30%, still some way behind PM Johnson's Conservatives, which remain at 41% and are well positioned to win the upcoming election and return to Parliament with a working majority under the UK's first past the post electoral system. The pound, while having rallied by about 8% from mid August low in the BoE's real trade-weighted measure, still trades with about a 9% discount from levels prevailing ahead of the vote to leave the EU in June 2016. There is a good reason to expect markets will continue to demand a discount. The UK's economic vitality have been damaged by a prolonged period of under investment due to Brexit-related uncertainty, for one. Also, some uncertainty remains about the upcoming election, particularly if Labour and the Liberal Democrats decide on forming a coalition (both have publicly said they don't want this, but things could change at crunch time). The spectre of a no-deal Brexit could also return if the Tories saw their lead whittle, which could give rise to a partnership with the Brexit Party. These are just several of the known possible scenarios.

    [USD, CHF]
    EUR-CHF is up for a third consecutive day, printing a one-week high at 1.0970. This puts in a little more space from the six-week low seen last Thursday at 1.0863. The cross has been lifted by Brexit news, with opinion polls showing a growing lead for PM Johnson's Conservative party. The two-and-a-half-year low seen in early September at 1.0811 has now swung back out of scope, for now.

    [USD, CAD]
    USD-CAD posted an 11-day low at 1.3190 in what is now a fourth consecutive trading day of decline. This puts in some further space from the five-month peak seen last week at 1.3270. The latest down leg was driven by broader declines in the U.S. dollar, and was seen despite a 1.5%-plus drop in oil prices. A tentative risk-on mood has been prevailing, offsetting the recent dovish turn at the BoC in the case of Canada's currency. Canada's data release highlights this week include CPI, retail sales and manufacturing, which will scrutinized in light of the BoC's bias to cutting rates as soon as its December policy meeting.

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