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By XE Market Analysis October 3, 2019 7:12 am
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    XE Market Analysis: North America - Oct 03, 2019

    The dollar found a footing, paring losses after seeing fresh lows against the euro and yen. The Swiss franc underperformed notably, and was showing losses of around 0.5% at its lows against the dollar, euro and yen. Suspicions of SNB intervention abounded. EUR-CHF printed a three-week high at 1.0974, extending a rebound from the 27-month low seen in early September at 1.0811. EUR-USD settled back after extending yesterday's rally slightly in printing a one-week high at 1.0973. Helping curtail dollar losses, which have come amid U.S. data suggesting that pronounced economic slowing is afoot, were weak PMI data out of both the Eurozone and UK. The final September Eurozone PMI data showed the composite reading revised down to a 50.1 reading, flagging stagnant economic conditions at risk of turning recessionary. The UK's September services PMI, meanwhile, fell below the 50.0 growth/expansion divide to a headline reading of 49.5, dropping from August's 50.6. Both new and outstanding business declined, while job cutting was at the quickest pace seen since August 2010. Ominously the report found evidence that international clients had switched business to other markets amid increased concerns for the UK leaving the EU without a deal. On the Brexit front, the UK government has given the EU its Brexit proposals on a divorce plan. And the response has been... cool. USD-JPY settled above 107.00 after edging out a fresh low, at 106.96, which matched the three-week low that was seen last week.

    [EUR, USD]
    EUR-USD extended yesterday's rally slightly, printing a one-week high at 1.0973 before settling back. The gains reflected a broader turn lower in the dollar amid growing data points showing the U.S. economy to be in the grip of a pronounced phase of economic slowing. This narrative found an offset from the release of final September composite PMI survey out of the Eurozone, which was revised down to a 50.1 reading, flagging stagnant economic conditions at risk of turning recessionary. The U.S. imposition of tariffs of 10% on EU aircraft, and 25% on EU agricultural and industrial goods, has also put the breaks on EUR-USD's ascent, although the dollar could still rotate lower still should U.S. data underwhelm. Friday's U.S. nonfarm payroll report is a major focus, as will today's services ISM report, as any signs that slowing in manufacturing is spreading into the service sector would be worrisome. Overall, the bearish case for EUR-USD has been put on ice, for now, with the U.S. economy starting to looking much less exceptional in terms of growth performance. This should keep the dollar on a back foot, though any prolonged period of risk aversion in global markets would likely generate demand for U.S. Treasuries, being the largest risk-free asset market in the world, which would given the dollar an underpinning.

    [USD, JPY]
    USD-JPY edged out a fresh low, at 106.96, which matched the three-week low that was seen last week. EUR-JPY and GBP-JPY also edged out new lows. The Japanese currency is showing gains versus all the other main currencies from week-ago levels, reflecting a rekindling in demand for safe havens in global markets. More of the same looks likely.

    [GBP, USD]
    The pound has hunkered down in an at times choppy range above recent lows seen against the dollar and euro. The UK's September services PMI fell below the 50.0 growth/expansion divide to a headline reading of 49.5, dropping from August's 50.6. The median forecast had been for a 50.3 outcome. Both new and outstanding business declined, while job cutting was at the quickest pace seen since August 2010. Ominously the report found evidence that international clients had switched business to other markets amid increased concerns for the UK leaving the EU without a deal. The month-on-month fall in the index for new export business fell at its sharpest pace since the series began in September 2014. The composite PMI fell to 48.8 in September from 49.7 in the month prior -- the first back-to-back contraction in the all-sector measure since the last two months of 2012. Among a slow of worrisome details, the September PMI surveys found employment contracting at its fastest pace since December 2009, the days of the Great Recession. Overall, the data should further facilitate a dovish-turn-in-progress at the BoE, which in turn should cap upside potential of the pound. On the Brexit front, meanwhile, the UK government has given the EU its Brexit proposals on a divorce plan. And the response has been... cool. As things stand, it looks likely that Prime Minister Johnson won't get a deal by October 19, and the new law requiring an extension in Brexit to January 31 will kick in.

    [USD, CHF]
    The Swiss franc is the biggest loser out of the main currencies in what is now a third day of notable underperformance out of the last four trading days. EUR-CHF printed a three-week high at 1.0974, extending a rebound from the 27-month low seen in early September at 1.0811. Suspicions of SNB intervention abound, which makes sense from a tactical perspective, with the central bank having stood aside when then cross was downward trending amid broader euro underperformance before stepping in when EUR-USD is on the ascent. At its quarterly policy review earlier in the month, the SNB repeated its long held view that the franc remains "highly valued", while highlighting fragile markets and affirming the commitment to intervene in currency markets if needed. The franc regularly tops the Economist magazine's Big Mac purchasing parity comparison of currencies as being the most overvalued currency.

    [USD, CAD]
    USD-CAD eked out a fresh one-month high at 1.3335. This extended the sharp rally seen yesterday, which was driven by pronounced underperformane in the Canadian dollar as oil prices crashed to fresh lows, which offset the narrowing in the Greenback's yield advantage over the Loonie.

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