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By XE Market Analysis October 16, 2019 7:33 am
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    XE Market Analysis: North America - Oct 16, 2019

    The pound corrected some of its recent gains, and the Australian and New Zealand dollars came under some pressure amid a restive and risk-wary sentiment in global stock markets, while EUR-USD and USD-JPY, and most other pairings, held in narrow ranges. Sterling was off lows but still showing a decline of 0.3% against the dollar, as of the early London afternoon sessions. Volatility has been high in the UK currency amid mixed messaging from ongoing last-minute Brexit negotiations. To illustrate: Reuters reported a source saying that talks were getting snagged down, while the EU's chief Brexit negotiator Barnier reportedly said that is was optimist of getting a deal done today, while Bloomberg cited an EU diplomat saying that it's now too late for a deal to be formally agreed at tomorrow's EU summit. Etc. What seems to be at issue is the political viability of keeping Northern Ireland in the EU's customs union post Brexit. Elsewhere, AUD-USD,printed a one-week low at 0.6726. EUR-USD edged out a new high for the week, at 1.1060, before settling back to near net unchanged levels around 1.1030. USD-JPY settled in a narrow range below the 10-week high seen yesterday at 108.89.

    [EUR, USD]
    EUR-USD posted a new high for the week, at 1.1060. The euro has been benefiting from the improved mood music coming from the Brexit front. 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.

    [USD, JPY]
    USD-JPY posted a fresh 10-week high at 108.89 during the NY afternoon session yesterday, and has since remained buoyant. The new high extends the pronounced rally phase that's been unfolding since the early-October lows under 106.50. The yen continues to be directionally linked to global stock market direction. Risk appetite soared last week on the progress the U.S. and China made on trade, and has extended this week on the back of encouraging Brexit developments. USD-JPY has been trending upwards since the August-25 low at 104.45, which is a 35-month nadir. The prevailing up-phase marks a correction in the bear trend that has been unfolding from the October-28 high at 114.55.

    [GBP, USD]
    Sterling racked up losses during the London morning session, and was showing respective 0.7% declines against the dollar and euro, and a 0.9% loss to the yen, as of the late AM session. UK September inflation data came in a tad more benign in the headline CPI reading, though the real reason for the correction is a more circumspect sentiment with regard to Brexit developments. First, hopes for agreement to be reached by midnight last night have been dashed, which has had a dampening effect on markets' optimism, even though talks are continuing and the mood music remains overall upbeat. The UK government has also been subjected to difficult questions by opposition with regard to the plan for the Irish border, highlighting along the way the possibility that Northern Ireland withdraws consent, which would throw a spanner in the works. Even if an agreement is made, there remains uncertainties: whether it will pass in Parliament, whether there will be a "confirmatory" referendum, and what the outcome of that would be, and whether there will be a delay. A general will also be on the agenda, most likely before the end of the year. Even if a deal is made and approved by Parliament, and the UK exits on October 31, investors will then have to compute an increased risk of the UK devloving. Scotland's SNP is already angling for a new independence referendum, and it has come conceivable that Northern Ireland could break free from the UK, too, as a means to remain in/return to the EU and preserve a free flowing border on the island of Ireland. What is certain is that sterling is in for a period of high volatility.

    [USD, CHF]
    EUR-CHF has been buffeted by Brexit headlines in a will-they-won't-they back and forth regarding the UK and EU chances of reaching a deal, and whether a delay is likely. More of the same seems likely into Thursday's EU summit and the UK's self-imposed deadline of October 19 (Saturday) to achieve a deal (if not, a newly minted law requites the government to ask the EU for an extension). EUR-CHF yesterday rallied back above 1.1000. The cross capped out at a 10-week high on Friday at 1.1039.

    [USD, CAD]
    USD-CAD has found a footing after dropping sharply lower in the latter part of last week. A softening in oil prices thi week has taken the wind out of the sails of the Loonie. The head of OPEC said earlier in the week that the group is thinking of supply curtailment given concerns about flagging global demand. Concerns about demand were also fanned by a batch of weak data out of China this week. USD-CAD has been amid a sideways chop since mid January, ranging from 1.3016 on the downside to 1.3565 on the upside. More of the same looks likely.

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