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By XE Market Analysis October 25, 2019 7:15 am
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    XE Market Analysis: North America - Oct 25, 2019

    Directionally inactive best describes trading among the main currencies so far today. The Brexit process has become snarled up (again), and market narratives are expressing a wariness ahead of top-level talks between U.S. and Chinese officials later today, and into monetary policy meetings at the Fed and BoJ next week. EUR-USD has been holding steady just above 1.1100. At these levels the pairing is showing a 0.6% decline versus week-ago levels, and a rise of 1.7% from month-ago levels. The rise over the month reflects the pricing out of no-deal Brexit risk on October 31, which had been posing a threat to the Eurozone economy. The Brexit saga is far from over, however, and there remains a theoretical risk of a no-deal scenario, although now further down the track. The EU today delayed its decision on what length of Brexit extension to give the UK until early next week, having been discombobulated by PM Johnson's threat to pull his Brexit deal should the opposition refuse his call for a general election. Despite this, the pound has traded steadily, having rebounded from lows seen late yesterday. Cable has settled in the mid 1.2800s, above the eight-day low that was printed at 1.2788. USD-JPY has been amid a narrow chop around the 108.50-60 area, remaining buoyant with the yen underperforming most other currencies recently amid a backdrop of cautious risk taking in global markets. The pair remains a short distance from the 12-week high seen last week at 108.94. USD-CAD has remained heavy since printing a fresh three-month low at 1.3053 yesterday.

    [EUR, USD]
    EUR-USD has been holding steady just above 1.1100. At these levels the pairing is showing a 0.6% decline versus week-ago levels, and a rise of 1.7% from month-ago levels. The rise over the month reflects the pricing out of no-deal Brexit risk on October 31, which had been posing a threat to the Eurozone economy. The Brexit saga is far from over, however, and there remains a theoretical risk of a no-deal scenario, although now further down the track. ECB's Draghi, at his final policy meeting yesterday, left both policy and guidance unchanged. Incoming President, Christine Lagarde, is expected to bring a more dovish tilt to the central bank. The Fed meets next week, where a 25 bps has been fully discounted, and where the focus will be on guidance given the evident slowing in the U.S. economy. Taking a step back, 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 been amid a narrow chop around the 108.50-60 area, remaining buoyant with the yen underperforming most other currencies recently amid a backdrop of cautious risk taking in global markets. The pair remains a short distance from the 12-week high seen last week at 108.94. The BoJ policy meeting on October 30-31 has come into scope. Reuters cited sources saying that policymakers are leaning towards keeping monetary policy unchanged given the apparent truce in U.S.-China trade warring and with financial markets steady. The BoJ yesterday warned today about riskier lending practices of financial firms as a consequence of super accommodative monetary conditions. Regarding U.S. and Chinese trade, officials will discuss plans today for China to buy more U.S. farm products in return for the U.S. cancelling some of the planned and existing U.S. tariffs on Chinese imports, according to sources cited by Reuters. Data this week showed Japanese factory activity slowing at the quickest rate in more than three years in October, hurt by slowing global demand and the associated trade frictions.

    [GBP, USD]
    Cable has settled in the mid 1.2800s, above the eight-day low that was printed at 1.2788. Brexit remains front and centre. The EU's chief Brexit negotiator Barnier just confirmed that the EU27 has not yet agreed the length of a Brexit, having been discombobulated by PM Johnson's threat to pull the Brexit deal if the opposition don't agree to a general election. Lots of angry tweeting is now happening across the UK political spectrum. Johnson is set to table a motion calling for a December-12 election on Monday. Scotland's SNP is calling for an election on December 5. Labour, the principal opposition in the UK, has stated that they will agree to an election but only if there is an "explicit commitment" to rule out a no-deal. The EU will likely make a decision on the delay, which hinges between a short one that would only allow time for the Brexit deal to be voted on, or a longer one, out to January 31, which would allow time for the UK to stage a general election. Most likely the EU will agree to a three-month extension. If there is a stalemate on calling election, the opposition may be able to galvanize itself to vote for a referendum. As things stand, a no-deal Brexit is ruled out on October 31, though the possibility of a no-deal eventuality remains at a later date.

    [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 has remained heavy since printing a fresh three-month low at 1.3053 yesterday. The pair has fallen by over 2% in 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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