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By XE Market Analysis October 14, 2019 7:29 am
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    XE Market Analysis: North America - Oct 14, 2019

    The biggest mover so far today has been the GBP-JPY cross, which has dropped by nearly 1%, reflecting about two parts sterling underperformance amid reports of a lack of progress in Brexit negotiations over the weekend, and about one part yen outperformance, which rebounded as the optimism over the yet-to-be-signed-off U.S.-China trade deal faded. The dollar traded most firmer, rising versus the pound and dollar bloc currencies, holding at modestly firmer levels against the euro, while losing a little ground to the yen. Cable retreated to levels near 1.2550, putting in some space from Friday's peak at 1.2707. EUR-USD settled moderately lower from the three-week high seen on Friday at 1.1062. USD-JPY drifted lower, posting a low of 108.04, down from the 10-week peak seen Friday at 108.62.

    [EUR, USD]
    The euro is showing a rare weekly gain against a multitude of other currencies, up 0.4% versus the dollar, by 0.7% in the case against the Swiss franc, and a near 1.5% advance against the yen. The improved mood music coming from the Brexit front (Irish PM saying that he is now "absolutely convinced" PM Johnson wants a deal) suggests that the common currency will be able to maintain an underlying bid against the dollar and other currencies, ex sterling, at least for now. EUR-USD yesterday pegged a three-week high at 1.1033. Bigger picture, EUR-USD has been in a clear bear trend since early 2018, descending from levels above 1.2500 over this time period. The 28-month low seen on October 1, at 1.0879, marked a reaffirmation of this trend. The pairing is set to close out with a second consecutive weekly gain, although this in itself doesn't not signal a change in the overall trend.

    [USD, JPY]
    USD-JPY has drifted lower, posting a low of 108.04, down from the 10-week peak seen Friday at 108.62. The yen continues to be directionally linked to global stock market direction. Last week the currency underperformed markedly as risk appetite soared on the progress the U.S. and China made on trade, and has firmed back a little as some of the euphoria diminished over the weekend. The partial deal announced on Friday has yet to be signed off on, with various potentially contentious points of detail yet to be hashed out. USD-JPY has been trending upwards since the August-25 low at 104.45, which is a 35-month nadir. This marks a correction in the bear trend that has been unfolding from the October-28 high at 114.55.

    [GBP, USD]
    Sterling has corrected someafter seeing the biggest two-day rally in 25 years at the tail end of last week. Regarding Brexit, the optimism of late last week has given way to a much more cautious sentiment with regard to the prospects of the UK and EU reaching an agreement on divorcing terms, specifically the Irish border. From the EU side, as a Guardian correspondent said, the UK government's proposals on the Irish border are seen as complicated and too risky for the EU. The EU's chief Brexit negotiator Barnier said there are "big problems" with the UK's plans for the Irish border while also describing them as "risky." Ireland's foreign minister and deputy prime minister, Coveney, struck a more upbeat tone is saying that a deal is possible, and possible this month, and even this week, "but we're not there yet." On the UK side, the DUP is turning against the proposals, on the view that any solution that does not treat Northern Ireland the same as England would be unacceptable. The clock is ticking, with the UK government having until Saturday to have a deal agreed with Europe and passed in Parliament. If not, then the new law preventing a no-deal Brexit on October 31 would kick in, and Brexit will be delayed. Overall, the odds for a deal being reached are some way better than they appeared before last Thursday's meeting between the Irish and British leaders, but there clearly remains significant obstacles in the path to achieving a deal that needs to deliver Brexit while honouring the existing Good Friday Peace Agreement. If a delay happens, the focus will sharply turn to a yet-to-be-arranged general election.

    [USD, CHF]
    EUR-CHF has turned lower as last week's optimism about the EU and UK making progress on Brexit has cooled. Northern Ireland's DUP, not surprisingly said it was against the plan, being unionists and given the plan to keen Northern Ireland aligned with the EU customs union post Brexit, which would insert customs border between it and the rest of the UK. Many Labour Party members are reportedly against the deal. The EU's chief negotiator, Barnier, also said that weekend talks were "difficult," that the Irish border remained an "untested" risk, and that negotiations may have to extend beyond Thursday's EU's summit. EUR-CHF traded below Friday's low in making 1.0971. The cross capped out at a 10-week high on Friday at 1.1039.

    [USD, CAD]
    USD-CAD turned quite sharply lower in the latter part of last week Oil prices jumped higher on Friday, supportive for the Canadian currency. The head of OPEC said that the group is thinking of supply curtailment given concerns about flagging global demand. The geopolitical situation in the Mideast also remains fragile. The U.S. is making a full military withdrawal from Syria, and an explosion on a Iranian oil taker was, according to Tehran, caused by a missile strike.

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