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By XE Market Analysis September 3, 2019 7:24 am
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    XE Market Analysis: North America - Sep 03, 2019

    The Dollar has remained buoyant, which has seen the narrow trade-weighted USD index hit a fresh 28-month high today, at 99.33. EUR-USD concurrently ebbed to a new 28-month low at 1.0930 in what is now the pair's seventh consecutive day of printing lower lows. The pairing is down by around 1.3% from week-ago levels. Cable, meanwhile, has traded below 1.2000 for the first time since January 2017, which, aside from a broadly firmer dollar, has been a consequence of Pound underperformance as a tumultuous, future-defining week commences on the UK political scene. Opposition members of parliament are primed to today wrest control of the House of Commons agenda and attempt to pass legislation that would stop a no-deal Brexit on October 31, which could happen either today or tomorrow. Prime Minister Johnson has made it clear that he will call a general election if such legislation were passed, which, according to reports, would be staged on October 14. Two thirds of the House would need to approve an election, and leaders of the Labour Party, the principle opposition, have stated they would back an election on the condition that Johnson doesn't try to pull a fast one and trigger Brexit before an election took place. Elsewhere, USD-JPY has settled in an oscillation in the lower-to-mid 106.0s. AUD-USD printed a four-week low at 0.6687 following sub-forecast Australian retail sales data. The RBA left the cash rate at a record low 1.00%, as anticipated, though the statement pointed to tentative signs of improvement in the Australian economy's fortunes, which helped spark about a 30 pip rebound in the Aussie.

    [EUR, USD]
    EUR-USD has ebbed to a new 28-month low at 1.0930, which was seen ahead of the London interbank open, in what is now the pair's seventh consecutive day of printing lower lows. The pairing is down by about 1.3% from week-ago levels. The lift in U.S. Treasury yields over the last week and associated easing in risk-averse positioning has taken the perceived pressure off the Fed to loosen monetary policy aggressively, which in turn has given the dollar some buoyancy. On the euro's side of the scales, the ECB remains on course to increase monetary stimulus settings in September, while the risk of a no-deal Brexit, which has been amplified by the new UK prime minister, and which in the event would be detrimental to the Eurozone economy, is high on the "reasons to be concerned" side of the positional decision-making list of market participants. The no-deal Brexit risk was on the list of factors blamed for the recent record low in Hungarian forint. We retain a bearish view of EUR-USD. Resistance comes in at 1.1098-1.1000.

    [USD, JPY]
    USD-JPY has settled in an oscillation in the lower-to-mid 106.0s. The balance of risks remain to the downside, with the Yen likely to see a renewed richening in its safe haven premium. While investor risk appetite improved over the last week, stock markets are sputtering, and there remains a distinct restive tone in mix of factors influencing market sentiment. A Bloomberg report highlights difficulties in arranging face-to-face trade talks between the U.S. and China, which are, or were, supposedly restarting this week. The U.S. rejection of Beijing's request to delay the start of tariffs that came into effect over the weekend has maintained high tension in relations. Also in the mix is Argentina's debt crisis and the risk of a disorderly, no-deal Brexit, which would have the potential to push the European economy into recession (it should be stressed that a no-deal scenario is not a certainty, and it is still a possibility that Brexit could be cancelled).

    [GBP, USD]
    The Pound has racked up a second day of losses, presently showing a 0.6% decline and is now down by 2.4% from week-ago levels versus the dollar. Markets look to be hedging more on there being on a no-deal Brexit than a Brexit with a deal and transition period, or even a Brexit cancelled scenario, even though these remain possibilities. The logic is that even if opposition members of parliament managed to legislate against a no-deal Brexit this week, which is looking a real possibility, then Prime Minister Johnson would call an election, of which he and his Tory party would be favourites to win, especially as he would have the backup of forming a coalition with the Brexit Party. This would keep the possibility, if not probability, of a no-deal on the table. There would be no guarantee of Johnson winning an election, however, particularly if the Labour and Liberal Democratic parties united in a coalition. Cable printed a low at 1.1958, which is the lowest seen since the flash-crash nadir seen in the wake of the vote to leave the EU in 2016. The Pound also traded lower versus the Euro and Yen, among other currencies, but has so far remained above recent major-trend lows in these cases. Various analyst notes are in circulation arguing the merits of taking a long sterling position, or buying an "long way" out-of-the-money call option in anticipation of a sustained short squeeze (boiling down to a bet that a no-deal Brexit will at some point cease to be a possibility, which is a risk proposition).

    [USD, CHF]
    EUR-CHF nudged back under 1.0850 after last week printing a 10-day high at 1.0923. The 25-month low seen on August 15 at 1.0835 is back in the scopes, while a three-week range high at 1.0928 was left untroubled by last week's rise. While sentiment in global markets improved last week, there remains a skittish undertone as prospects for a thawing in U.S.-China relations seem limited. The Trump administration's agenda appears to be one of containment rather than the mere seeking of improved trading terms, while Beijing's insistence for the U.S. not to implement new tariffs has fallen on deaf ears (the latest tariff increases came into effect yesterday). The risk of a disorderly no-deal Brexit on October 31 is also a negative for the Euro. Overall, we retain a bearish view of EUR-CHF.

    [USD, CAD]
    USD-CAD yesterday printed a two-and-a-half month peak at 1.3361 in a move exaggerated in magnitude by the unusual thinness of the market amid the Labor Day holiday in North America. The pairing subsequently settled lower. With relations between the U.S. and China remaining tense, with the Trump administration implementing new tariff hikes over the weekend, ignoring Beijing's request not to, and which may scupper chances for the face-to-face talks that had been scheduled for this week, the directional bias is likely to remain to the upside. The Canadian Dollar is sensitive to global economic fallout, or expectations thereof, from the U.S.-China trade war given its correlation with commodity prices, especially oil. USD-CAD has support at 1.3270-73.

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