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By XE Market Analysis October 24, 2019 7:14 am
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    XE Market Analysis: North America - Oct 24, 2019

    The dollar picked up some demand after a bout of weakness, while the Australian and New Zealand dollars came under some pressure. EUR-USD carved out a high at 1.1162 before tumbling back to the lower 1.1100s. Cable settled back around the 1.2900 mark after an early London pop to 1.2950, continuing a choppy consolidation below the five-month peak seen on Tuesday at 1.3012, which was the culmination of a pronounced phase of sterling outperformance. Her Majesty's currency remains up by over 4.5% from month-ago levels against the dollar, and by 5.4% and 2.7% in the respective cases against the yen and euro over this time frame. The EU has been indicating that it will grant a Brexit extension, though how low this will be remains uncertain at this stage. USD-JPY remained buoyant with the yen underperforming most other currencies amid a backdrop of cautious risk taking in global markets. The pair printed a one-week high at 108.75 and remains a short distance from the 12-week high seen last week at 108.94. Stock marks in Europe rallied, as did most in Asia, though Chinese shares sputtered. AUD-USD tipped lower, to a one-week low at 0.6825, correcting some of the strong gains seen last week and into the early part of this week. USD-CAD edged out a fresh three-month low at 1.3066, with the pair having now fallen by just over 2% over the last two weeks. This decline has been concomitant with a 6%-plus rise in oil prices over the same period, which is a positive lead for the Canadian dollar.

    [EUR, USD]
    EUR-USD carved out a high at 1.1162 before tumbling back to the lower 1.1100s. From month-ago levels, the common currency is showing a 1.7% gain against the dollar, a 2.5% rise on the yen, and a 1.6% advance versus the Swiss franc, although is down by 2.7% in the case against the outperforming pound. The substantial abatement in no-deal Brexit risk has boosted both sterling and the euro against most other currencies. We still class EUR-USD as being amid a bear trend that's been unfolding since early 2018, from levels around 1.2500. The trend has coincided with the 10-year Bund yield dropping from levels over 0.70% to the prevailing -0.40% yield (a -0.739% low was seen in early September).

    [USD, JPY]
    USD-JPY has remained buoyant with the yen underperforming most other currencies amid a backdrop of cautious risk taking in global markets. The pair printed a one-week high at 108.75 and remains a short distance from the 12-week high seen last week at 108.94. The BoJ warned today about riskier lending practices of financial firms as a consequence of super accommodative monetary conditions, while Japanese factory activity slowed at the quickest rate in more than three years in October, hurt by slowing global demand and the associated trade frictions. Stock markets have remain upbeat, however, and the S&P 500 is within 1% of its record high. The truce in U.S.-China trade warring and the near ruling out of a no-deal Brexit scenario on October 31, along with the U.S. lifting of sanctions against Turkey, have been positives for investor sentiment. The AUD-JPY cross has been bid up as a consequence of this backdrop, essentially being a forex market barometer of global risk appetite. While off its recent highs, the cross is showing a 3.5% gain on the month so far, although it remains down by 3.9% on the year-to-date.

    [GBP, USD]
    Cable has settled back around the 1.2900 mark after an early London pop to 1.2950. The pair is consolidating below the five-month peak seen on Tuesday at 1.3012, which was the culmination of a pronounced phase of sterling outperformance. Her Majesty's currency is up by over 4.5% from month-ago levels against the dollar, and by 5.4% and 2.7% in the respective cases against the yen and euro over this time frame. Political developments in the UK have greatly diminished the risk for there being a no-deal Brexit scenario on October 31, which has seen markets unwind a good portion of the pound's Brexit discount. With the government now unable to ratify PM Johnson's Brexit deal by month end, an extension is more than likely, though how long it will be remains uncertain. Most of the EU27 member states appear to be happy with an extension to January 31, which would allow time for the UK to stage a general election, though France is reportedly preferring a shorter "technical" extension, which would only allow time for parliamentary votes on the Brexit deal. With both the UK government and opposition wanting an election, most likely the EU will cede to a three-month extension. While the risk for a no-deal Brexit at month end has all but disappeared, the possibility for a no-deal eventuality further down the track remains. This should limit the pound's upside potential for now.

    [USD, CHF]
    EUR-CHF has been lifted recently by the diminishing in no-deal Brexit risks, which has been supportive of the euro.. The cross last week printed a two-and-a-half-month high at 1.1059 and has since remained buoyant.

    [USD, CAD]
    USD-CAD edged out a fresh three-month low at 1.3066, with the pair having now fallen by just over 2% over the last two weeks. This decline has been concomitant with a 6%-plus rise in oil prices over the same period, which is a positive lead for the Canadian dollar. An improvement in risk appetite in global markets has been at play, which has lifted the commodity-correlating dollar bloc currencies. The truce in U.S.-China trade warring and the near ruling out of a no-deal Brexit scenario on October 31, along with the U.S. lifting of sanctions against Turkey, have been positives for investor sentiment. A one-year low at 1.3016, seen back in July, provides a downside focal point for USD-CAD.

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