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By XE Market Analysis October 21, 2019 7:09 am
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    XE Market Analysis: North America - Oct 21, 2019

    Sterling has rallied to fresh five-month highs against the dollar, at 1.3011. This makes this week the third consecutive week where the previous week's peak has been breached. This is also potentially the eighth week the pair has rallied out of the last 11 weeks. Markets are diminishing the risk of a disorderly no-deal Brexit while pricing-in stronger odds for the Brexit deal on the table to be passed or, if not, for there to be a delay and referendum and/or general election. The UK Parliament's voting in favour of an amendment that forced PM Johnson to ask for the EU for a delay, and that ensures that legislation for PM Johnson's deal has passed before the actually vote on the deal itself, has effectively wiped out the risk for there being a no-deal Brexit on October 31. Note that Brexit can still happen on October 31, provided that the legislation for it passes and the actual vote on the deal passes on time. The euro also benefited from the improved vibe on the Brexit front. EUR-USD posted a fresh 11-week high at 1.1179, while EUR-JPY posted a three-month high. USD-JPY was also remained buoyant, aided by gains in European stock markets today.

    [EUR, USD]
    EUR-USD posted a fresh 11-week high at 1.1179. The euro has been benefiting from the progress on the Brexit front, with the UK and EU striking a deal on divorcing terms last week. The deal is now in the hands of the UK's Parliament, which on Saturday voted in a bill amendment which effectively guarantees that a no-deal Brexit cannot happen by accident on October 31. The dollar, meanwhile, has been weighed down somewhat by a run of U.S. data that has fed the "risk of recession" narrative. EUR-USD last week clocked its first run of three consecutive up weeks since the late June to early July period.

    [USD, JPY]
    USD-JPY has remained buoyant, while EUR-JPY rallied into five-month high terrain, and GBP-JPY back to within a whisker of the five-month high the cross saw last week. Political developments in the UK have further diminished odds for a no-deal Brexit scenario on October 31, which injected a risk-on vibe in global markets and in turn drove an underperformance in the yen. 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 has rallied to fresh five-month highs against the dollar, at 1.3011. This makes this week the third consecutive week where the previous week's peak has been breached. This is also potentially the eighth week the pair has rallied out of the last 11 weeks. Markets are diminishing the risk of a disorderly no-deal Brexit while pricing-in stronger odds for the Brexit deal on the table to be passed or, if not, for there to be a delay and referendum and/or general election. The UK Parliament's voting in favour of an amendment that forced PM Johnson to ask for the EU for a delay, and that ensures that legislation for PM Johnson's deal has passed before the actually vote on the deal itself, has effectively wiped out the risk for there being a no-deal Brexit on October 31. Note that Brexit can still happen on October 31, provided that the legislation for it passes and the actual vote on the deal passes on time. We assume that the EU won't disallow an extension of Brexit should one become necessary to avoid a no-deal Brexit and to allow time for a referendum and/or general election.

    [USD, CHF]
    EUR-CHF has been lifted by the Brexit deal, which has been supportive of the euro. The cross printed a two-and-a-half-month high at 1.1059 last week before pulling back under 1.1000.

    [USD, CAD]
    USD-CAD on Friday posted a fresh two-and-a-half-month low at 1.3119. Increasing signs of U.S. turbulence in the U.S. economy, including a miss retail sales, which is ominous in so far as it shows the slowing in manufacturing and business investment is spreading to the all-important consumer sector, has been taking a toll on the U.S. dollar. 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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