Home > XE Currency Blog > XE Market Analysis: North America - Oct 30, 2019

AD

XE Currency Blog

Topics6786 Posts6831
By XE Market Analysis October 30, 2019 6:52 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4710
    XE Market Analysis: North America - Oct 30, 2019

    Both the dollar and yen ebbed against most other currencies, especially the euro, sterling and the Australian dollar, which have been moderate outperformers so far today. EUR-USD edged out a six-day high at 1.1123, and EUR-JPY posted a six-day peak. Cable also printed a six-day high, at 1.2905, and while GBP-JPY lifted, the cross remained shy of yesterday's highs. AUD-USD pegged an eight day high, at 0.6875, while AUD-JPY and AUD-NZD rose into respective six-week and three-month high terrain. The narrow trade-weighted USD index (DXY) carved out a five-day low at 97.60. Both the pound and the euro have been buoyed by political developments in the UK that have put on a general election for December 12, so preventing the spectre of a so-called 'zombie' parliament (with the Labour Party having decided to back down from blocking an election). The Aussie dollar, meanwhile, lifted after the release of Australian CPI, which while meeting survey median forecasts with a q/q rate of 0.5% in Q3, and 1.7% y/y, had wrong-footed a market narrative that had been factoring of downside risk. Markets are now focusing in on the Fed's policy announcement today, particularly the central bank's guidance following an expected 25 bps rate cut. The CME's FedWatch Tool shows markets are currently discounting 21% odds for a follow up 25 bps cut at the December 11th FOMC. We are expecting Fed chair Powell to indicate that today's cut is an insurance move, which will dampen any perceptions that the Fed is amid a committed easing cycle, and which in turn could give the dollar a boost. On the U.S.-China trade front, all may not be well. A major sticking point is coming to light, with sources cited by Reuters reporting that Beijing is baulking at the level of purchases of agricultural products the U.S. is demanding. China's CSI 300 equity index closed 0.5% for the worse.

    [EUR, USD]
    The euro has been trading with buoyancy, overall, benefiting from the political developments in the UK. EUR-USD has edged out a fresh five-day high at 1.1119, and EUR-JPY has lifted into six-day high terrain. Markets are now focusing in on the Fed's policy announcement today, particularly the central bank's guidance following an expected 25 bps rate cut. The CME's FedWatch Tool shows markets are currently discounting 22% odds for a follow up 25 bps cut at the December 11th FOMC. We are expecting Fed chair Powell to indicate that today's cut is an insurance move, which will dampen any perceptions that the Fed is amid a committed easing cycle, and which in turn could give the dollar a boost. Juxtaposed to the view that incoming ECB President, Christine Lagarde, is expected to bring a more dovish tilt to the central bank, this makes us bearish of EUR-USD. We still class the pairing 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 -0.342% yield (a -0.739% low was seen in early September).

    [USD, JPY]
    The yen has been trading mixed today, edging out fresh lows against the euro and Australian dollar while posting moderate gains versus the dollar. The performance of the Japanese currency over the last month has been telling, showing a averaged loss of 3.3% against the dollar, euro, sterling and the Aussie dollar over this time frame. This has reflected the recent recovery in risk appetite over this time, which has culminated in the S&P 500 hitting record highs and Japan's Nikkei 225 ascending into one-year high territory. The yen has a long standing inverse correlation with global stock market direction (there are causational factors). This trend may be in jeopardy, however, with a major sticking point in U.S.-China trade talks coming to light, with sources cited by Reuters reporting that Beijing is baulking at the level of purchases of agricultural products the U.S. is demanding. Remember that the prior 12 rounds of negotiations between the two sides over the last year and a half have ended in disappointment. There are narratives that Beijing, despite a weakening economy and the disruptions in Hong Kong, is practising strategic patience into next year's presidential election in the U.S., showing that it is engaging in trade talks while not giving what the Trump administration wants. In so far as this may see a return of risk aversion in global markets, this could see the yen appreciate against the dollar and most other currencies.

    [GBP, USD]
    Cable edged out a six-day high at 1.2906, reflecting continued buoyancy of the pound. Political developments in the UK have, 1, put on a general election for December 12, and 2, prevented the spectre of a so-called 'zombie' parliament, with the Labour Party having decided to back down from blocking an election. The Brexit saga is not over, and all options remain open, from a no-deal Brexit to Brexit-cancelled, depending on the election results. PM Johnson's Conservative Party has a 13 point lead on the Labour Party, though is election is highly unusual and many political pundits in the UK have been emphasizing there is a high level of unpredictability. Small parties are likely to play a much bigger role than normal with voting pacts among opposition parties aiming to ensure that the pro-EU vote isn't split. There is also a risk of a hung parliament -- a political stalemate -- which would in this scenario probably lead to a second referendum on EU membership as a last-resort means to bring Brexit to a conclusion. Overall, we don't advise following pound gains at this juncture.

    [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 rebounded to 1.3100 before capping out, and Monday's three--month low at 1.3042 remains in play. The fresh lows mark this week up as the fourth consecutive week of lower lows, which has drawn in the one-year low seen in July at 1.3016. Recent declines have been concomitant with near 11% low-to-high rally in oil prices from early October lows, which is a positive lead for the Canadian dollar given the impact on the Canadian economy's terms of trade. We advise trend following with regard to USD-CAD.

    Paste link in email or IM