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By XE Market Analysis October 1, 2019 7:08 am
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    XE Market Analysis: North America - Oct 01, 2019

    The dollar pared gains after posting fresh highs against the euro, yen, Australian and New Zealand dollars, among other currencies. EUR-USD lifted out of a 28-month low at 1.0879, recouping to levels above 1.0900. EUR-CHF gained sharply, by nearly 0.5%, and most other euro crosses also rose, despite expectedly benign Eurozone inflation headlines in preliminary September data. USD-JPY posted a near two-week high at 108.47. The BoJ's quarterly Tankan survey showed confidence at big manufacturers to be at its weakest in six years. While the U.S. and Japan came to a trade deal, the Japanese economy has been indirectly hit by the U.S.-China trade spat. Sterling rallied in the initial wake of the UK's September manufacturing PMI report, though a read of the details of the report shows a much less rosy picture than the above-forecast headline seemingly suggested, and currency subsequently ebbed back. Cable printed an intraday high at 1.2306 before turning lower and printing a three-week low at 1.2260. The UK's September PMI beat expectations at the headline level, rising to a 48.3 reading, unexpectedly rising from August's six-and-a-half-year 47.4 outcome. But, the survey flagged fresh declines in new orders, output and employment also showed fresh declines, while showing that stock-building into the October-32 Brexit deadline had inflated the headline. The Australian dolllar tumbled on RBA guidance, with the central bank's governor repeating in his post-policy meeting statement that low interest rates will be required for an extended period of time. This followed a decision to leave the cash rate unchanged at its record low 0.75%. AUD-USD dropped over 1% in making a one-month low at 0.6700. NZD-USD concurrently posted a fresh four-year low, at 0.6227.

    [EUR, USD]
    The euro has been on the up, with EUR-CHF up sharply for a second consecutive day (SNB intervention?) and EUR-USD lifting out of a 28-month low at 1.0879 that was seen, recouping to levels above 1.0900. EUR-USD still remains just over 1% from week-ago levels, though EUR-JPY and most of the main euro crosses are flat or higher over this time frame. The new big-trend low in EUR-USD is a reaffirmation of a bear trend that's been in play since early 2018. More of the same looks likely. Preliminary Eurozone inflation data for September painted an expectedly benign picture of price pressures. The headline core rate ebbed to 0.9% y/y while the core figure came in at 1.0% y/y. The U.S. economy and Wall Street continues to hold up relatively well -- although showing signs of softening, and although a confluence of issues of potentially economy-distrupting proportions (trade warring, Iran risk, presidential impeachment) hang over the horizon like a dark cloud -- while data out of the Eurozone over the last week have exacerbated fears of recession. The U.S. data calendar this week will be important to with several key economic reports on the calendar that could sway the FOMC's decision on October 30. As always, the nonfarm payroll report (Friday) will a major for the economic outlook and will help guide the FOMC's decision on October 30. There's also manufacturing and non-manufacturing PMIs. The markets and the Fed will be very wary of cracks developing in the labor market and manufacturing. EUR-USD has support at 1.0879-80 and resistance at 1.0928-30.

    [USD, JPY]
    USD-JPY posted a near two-week high at 108.47, which mostly reflected broader demand for dollars. The BoJ's quarterly Tankan survey also showed confidence at big manufacturers to be at its weakest in six years. While the U.S. and Japan came to a trade deal, the Japanese economy has been indirectly hit by the U.S.-China trade spat. Japanese and other stock markets in Asia still rallied amid hopes that next week's round of senior face-to-face meetings between the U.S. and China will be fruitful. The hopes appear to be centred on a trade deal, even if only an "interim" deal. The U.S. seems intent on a strategic disengagement from China, though at the same time President Trump will be aware of the correlation between his approval rating and trade negotiations going well.

    [GBP, USD]
    Sterling rallied in the initial wake of the UK's September manufacturing PMI report, though a read of the details of the report shows a much less rosy picture than the above-forecast headline seemingly suggested, and currency subsequently ebbed back. Cable printed an intraday high at 1.2306 before turning lower and printing a three-week low at 1.2260. The UK's September PMI beat expectations at the headline level, rising to a 48.3 reading, unexpectedly rising from August's six-and-a-half-year 47.4 outcome. The median forecast had been for a decline to 47.0. But, the indicator is still flagging a sector in contraction, while new orders, output and employment also showed fresh declines. The weakest part of the survey was investment goods, reflecting a reluctance by businesses to commit to new capital expenditure due to ongoing uncertainties relating to Brexit, along with slowing economic conditions in Europe and globally. The consumer goods sector was the only category to see a rise in output in September, while input purchasing also rose as manufacturers bolster stocks into the October-31 Brexit deadline (although it has been looking increasingly likely that another delay will happen). The UK media have reported that Prime Minister Johnson will be giving its full plan for alternative arrangements for a post-Brexit Irish border solution over the next day, though don't hold your breath as EU officials are already aware of the plan's outline, and have communicated dissatisfaction with it. Opposition parties, meanwhile, are plotting to stage a confidence motion as soon as this week to take down Johnson's government, concerned that he might on technicality disregard the new law preventing a no-deal Brexit on October 31 in the event that a deal has been achieved.

    [USD, CHF]
    EUR-CHF has found a toehold after about a week-long spell of underperformance, which culminated in a three-week high being printed last Wednesday at 1.0832. The declines followed the SNB's quarterly policy announcement last week, which will be frustrating to Swiss policymakers given their chronic concerns of the franc's chronic state of overvalue-ment (which regularly tops the Economist magazine's Big Mac purchasing parity comparison of currencies). The 26-month seen in early September at 1.0811 has so far remained untroubled, but still looks vulnerable.

    [USD, CAD]
    USD-CAD has recouped back above 1.3250, a level that the pair has been gravitating around for over a week now. Oil prices have steadied after more than giving back the sharp gains seen in the immediate wake of the attack on Saudi crude facilities. Some key data loom on both the U.S. and Canadian calendars this week. The U.S. schedule culminates in the release of the September jobs report on Friday. The risks relative to expectations are clearly to the downside regarding upcoming U.S. economic reports, which generating downside bias in USD-CAD. As for Canadian data, July GDP (Tuesday) is expected to reveal a 0.1% gain (m/m, sa) after the 0.2% rise in June, consistent with slowing in Q3 GDP from the 3.7% clip revealed in the separate real Q2 measure. Canada's trade balance (Friday) is expected to show a narrowing in the deficit to -C$1.0 bln in August from -C$1.1 bln in July. The August industrial product price index is up today, though isn't often a market mover. Overall, assuming oil prices remain capped, and assuming incoming U.S. versus Canadian data maintains a slight dovish gap in Fed versus BoC outlooks, USD-CAD's looks likely to retain a moderate downward track.

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