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By XE Market Analysis November 26, 2019 6:33 am
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    XE Market Analysis: North America - Nov 26, 2019

    A drop in the pound provided some directional action in an otherwise narrow trading ranges so far today. The yen managed to eke out fresh lows against the dollar and other currencies before finding a footing. The pound was showing a 0.4% loss against the euro as of the late London morning session, and was showing a 0.3% decline against both the dollar and euro. While GBP-JPY has punched out a five-day high, Cable and EUR-GBP have remained within their respective Monday ranges, with the pound reversing most, but so far not all, of the gains seen yesterday. The rotation lower in the UK currency has been driven by news of a rise in support for Labour and a concurrent ebb in support for the Conservative party in latest opinion polling. Politico's poll tracker is showing Labour support at 31%, up 2 points from yesterday, with support for the Tories down a point, to 42%. Eleswhere, EUR-USD has been settled to narrow range trading above the 12-day low that was seen yesterday at 1.1003. USD-JPY made a two-week high at 109.20 before retreating to the upper 108.00s. Most yen crosses also saw new highs. AUD-JPY, for instance, saw a six-day peak. A cautious risk-on sentiment persisted in markets in Asia after the three major U.S. equity indices posted new record highs. Top U.S. and Chinese trade negotiators held a telephone conference yesterday, while China's Global Times reported that the two sides were "moving closer to agreeing" a phase-1 deal (now more than six weeks after first being announced). Fed Chairman Powell also threw in to the mix of sentiment drivers a remark that "the glass as much more than half full," while the ECB's chief economist, Lane, said that further stimulus would come if the inflation outlook worsens.

    [EUR, USD]
    EUR-USD has settled to narrow range trading above the 12-day low that was seen yesterday at 1.1003. Recent data have overall provided fresh signs of the relative strength of the U.S. economy relative to the Eurozone economy. We retain a neutral-to-bearish view of EUR-USD. There will be an ongoing a flurry of U.S. data releases through to Thursday, ahead of the Thanksgiving break, but the data won't alter the current outlook that the U.S. economy has stabilized around a 2% growth rate, and that while downside risks remain, positive elements are perking up. The Eurozone features a busy calendar of top tier releases, which will provide the latest test of the extent to which manufacturing weakness has spread to other sectors of the economy. EUR-USD has been chopping around 1.1050 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 Fed's measure of the dollar's broad trade-weighted dollar is at near three-year highs. A continuation of dollar firmness, which we anticipate for now, would likely keep EUR-USD's overall bias to the downside.

    [USD, JPY]
    The yen rebounded during the London morning after printing fresh lows during the Tokyo session. USD-JPY made a two-week high at 109.20 before retreating to the upper 108.00s. Most yen crosses also saw new highs. AUD-JPY, for instance, saw a six-day peak. A cautious risk-on sentiment persisted in markets in Asia after the three major U.S. equity indices posted new record highs. Top U.S. and Chinese trade negotiators held a telephone conference yesterday, while China's Global Times reported that the two sides were "moving closer to agreeing" a phase-1 deal (now more than six weeks after first being announced). Fed Chairman Powell also threw in to the mix of sentiment drivers a remark that "the glass as much more than half full." Merger and acquisition activity was another factor in the latest rally phase on Wall Street, while the ECB's chief economist, Lane, said that if the inflation outlook worsens the central bank could adjust all of its instruments -- quantitative easing, negative interest rates and the forward guidance. 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). This will keep 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]
    The pound racked up a 0.4% loss against the euro, which, as of the late London morning, was marginally the biggest movement being registered by the main dollar pairings and associated cross rates. The pound, meanwhile, was showing a 0.3% decline against both the dollar and euro. While GBP-JPY has punched out a five-day high, Cable and EUR-GBP have remained within their respective Monday ranges, with the pound reversing most, but so far not all, of the gains seen yesterday. The rotation lower in the UK currency has been driven by news of a rise in support for Labour and a concurrent ebb in support for the Conservative party in latest opinion polling. Politico's poll tracker is showing Labour support at 31%, up 2 points from yesterday, with support for the Tories down a point, to 42%. A major focus will now be on the release of YouGov's MRP poll at 22:00 GMT (17:00 ET) on Wednesday. The poll, with its "multilevel regression and post-stratification" methodology, is widely acclaimed for having accurately portended the outcome of the 2017 general election. This poll also comes with the public having now been able to digest the political manifestos of all the parties, so it will be taken as a being a key prognostication of the election outcome. The pound rallied by about 8% from mid August low on the BoE's real trade-weighted measure, as the risk for a no-deal Brexit fell, but still trades with about a 9% discount from levels prevailing ahead of the vote to leave the EU in June 2016.

    [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]
    The Canadian dollar has seen moderate softness following a quite-sharp intraday dip (nearly 1% at the lows) in oil prices yesterday. This has seen USD-CAD lift back above 1.3300, putting in some space from the six-day low seen on Friday at 1.3254. The low was seen after BoC Governor Poloz stated that interest rates are "about right," which was taken as a partial walk-back of recent dovish signalling from the central bank. At prevailing levels USD-CAD is trading near to the midway point of a broadly sideways range that's been seen since July 2018. More of the same looks likely.

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