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By XE Market Analysis November 22, 2019 7:27 am
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    XE Market Analysis: North America - Nov 22, 2019

    The dollar has been trading steady-to-firmer so far today, posting gains against the euro and the pound following weak flash November PMI data out of the UK and Eurozone. EUR-USD printed a one-week low at 1.1047 in the wake of the flash November PMI data out of the Eurozone, where disappointing services data outweighed an improvement in manufacturing data. The November composite PMI declined to 50.3 in the preliminary November estimate, declining from from 50.6 in October and showing the Eurozone economy to be in a state of stagnation. The euro also posted losses against the yen and Swiss franc, among other currencies, though the case against the pound has been an exception, with the UK currency having fallen sharply in the wake of the UK flash November PMI, which showed the headline falling to a 40-month low and economy to be in contraction. Cable sank to an eight-day low at 1.2863, while the UK currency posted respective 10-day and one-week lows versus the euro and yen. USD-JPY nudged under 108.50, though maintained an overall narrow range. USD-CAD edged out a three-day low at 1.3268, extending Canadian-dollar driven losses seen after BoC Governor Poloz stated that interest rates are "about right," which was taken as a walk-back of recent dovish signalling. Oil prices, while softer today, have also rallied by nearly 6% over the last two days.

    [EUR, USD]
    EUR-USD has posted a one-week low at 1.1047 in the wake of the flash November PMI data out of the Eurozone, where disappointing services data outweighed an improvement in manufacturing data. The November composite PMI declined to 50.3 in the preliminary November estimate, declining from from 50.6 in October and showing the Eurozone economy to be in a state of stagnation. The euro also posted losses against the yen and Swiss franc, among other currencies, though the case against the pound has been an exception, with the UK currency having fallen sharply in the wake of the UK flash November PMI, which showed the headline falling to a 40-month low and economy to be in contraction. With the dollar having picked up some support amid a backdrop of uncertainty about the U.S.-China trade situation, and assuming the U.S. flash November manufacturing PMI data produces the expected modest improvement, EUR-USD looks to be set for further downside. One thing to note, is that while the U.S. 10-year T-note over Bund yield spread has narrowed by about 11 bp over the last couple of weeks, EUR-USD has still traded net lower. The DXY USD index is also up over this time period, illustrating that the U.S. currency has been underpinned by a safe-haven bid, which has been offsetting the lower yield spread dynamic. More of the same looks likely, especially with a U.S.-China "phase 1" trade deal looking increasingly unlikely to happen this side of Christmas.

    [USD, JPY]
    USD-JPY nudged under 108.50, though maintaining a narrow range. From a week ago, the pair is showing a fractional 0.2% decline, and from month-ago levels the pair is virtually net unchanged. On the year-to-date, USD-JPY is down 0.9%. The narrow ranges reflects the tendency for both the dollar and yen to rise and fall in approximate unison against other currencies, with both being utilized as safe-haven currencies. In data today, Japan's flash composite PMI for November lifted to 49.9 in the headline reading, up from 49.1 in October. This had little impact on the yen. 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 is registering as the biggest loser on the day, with losses of about 0.3% against the dollar, euro and yen at prevailing levels. The catalyst was the first ever release of flash PMI data for the UK from Markit, which showed the composite reading falling to a 40-month low of 48.6 in November, down from the final October reading of 50.0. Among the details, workforce numbers fell by the most in over seven years. The survey pointed to prolonged uncertainty about Brexit, and also political uncertainty ahead of the December general election. Cable printed an eight-day low at 1.2863, while the UK currency posted respective 10-day and one-week lows versus the euro and yen. On the UK political front, there is now just under four weeks to go until the general election. The Conservative party has maintained a commanding lead in opinion polls, and PM Johnson will be assured that there has been little sign of a surge in support to the Labour Party as there had been in the election in 2017. From the markets perspective, this is seen as a positive for the pound, implying, as things stand, that PM Johnson's party will be returned to government with a working majority, and that the Brexit deal on the table will be implemented and that the UK will leave the EU in January, at which time the country will enter a transition period. In this scenario, another referendum on EU membership and the clouds of uncertainty will dissipate from the horizon.

    [USD, CHF]
    EUR-CHF ebbed back under 1.1000 after printing a 15-day high at 1.1010, making this the sixth consecutive trading day a higher high has been achieved. This has returned the cross to the upper portion of a broadly sideways range that's been persisting over the last three months. The decline from highs was a consequence of a sub-forecast reading in the Eurozone flash November composite PMI headline.

    [USD, CAD]
    USD-CAD edged out a three-day low at 1.3270 in early trading in Asia, extending Canadian-dollar driven losses seen after BoC Governor Poloz stated that interest rates are "about right," which was taken as a walk-back of recent dovish signalling. Oil prices, while softer today, have also rallied by nearly 6% over the last two days. At prevailing levels USD-CAD is trading near to the midway point of a broadly sideways range that's been seen since July 2018.

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