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By XE Market Analysis September 4, 2019 7:26 am
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    XE Market Analysis: North America - Sep 04, 2019

    The Dollar has traded most softer, although making gains against an underperforming Yen, while the Pound continued to charge higher, extending the rebound from yesterday that was sparked by news that opposition and Tory party rebel members of parliament had successfully wrested control of the House of Common's agenda, paving the way for a vote later today on a bill that would stop a no-deal from happening on October 31. Cable posted a high of 1.2220, the culmination of a 2% rally from yesterday's 35-month low at 1.1958 (not including the flash-crash lows seen after the Brexit vote in 2016). Elsewhere, EUR-USD extended a rebound that commenced yesterday after the pair hit a 28-month low at 1.0926, rising to three-session high terrain above 1.1020 today. Sub-forecast U.S. ISM and PMI survey data yesterday was followed by an unexpected upward revision in final Eurozone services and composite PMI data today. The Yen took a taken a rotation lower amid a risk-back-on sentiment. USD-JPY lifted to around 106.20-25 from sub-106.00 levels, while AUD-JPY saw a more pronounced advance. Above-forecast Caixin China services and composite PMI survey readings provided tonic to nervous markets, offset to the ill effects of yesterday's worrisome U.S. data.

    [EUR, USD]
    EUR-USD has extended a rebound that commenced yesterday after the pair hit a 28-month low at 1.0926, rising to three-session high terrain above 1.1020 today. Sub-forecast U.S. ISM and PMI survey data yesterday was followed by an unexpected upward revision in final Eurozone services and composite PMI data today. EUR-USD broke above resistance at 1.1098-1.1000, levels that now revert as support.

    [USD, JPY]
    The Yen has taken a rotation lower amid a risk-back-on sentiment. USD-JPY lifted to around 106.20-25 from sub-106.00 levels, while AUD-JPY saw a more pronounced advance. Above-forecast Caixin China services and composite PMI survey readings provided tonic to nervous markets, offset to the ill effects of yesterday's worrisome reading in U.S. ISM and PMI data. We still expect the Japanese currency will be prone to outperformance in the weeks and months ahead on the anticipation that its role as a safe haven currency will come into demand. While investor risk appetite has improved over the last week, global stock markets have been sputtering, and there remains a distinct restive tone in mix of factors influencing market sentiment. A Bloomberg report earlier in the week highlighted 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 (though 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 continued to rise, and is presently showing a gain of nearly 2% against the Dollar from yesterday's 1.1958 (which aside from the post-Brexit referendum flash-crash lows of 2016, likely a product of technical issues, is the lowest level Her Majesty's currency has seen since 1984). Sterling's buoyancy is a consequence of the opposition and Tory party rebel members of parliament taking control of the parliamentary agenda away from the government. They will vote, likely this evening, on actually stopping a no-deal on October 31 by forcing a delay, which in the event will see Prime Minister Johnson call a general election. The EU, meanwhile, has continued to signal that it won't budge on the Irish border issue, and that it would take the pain of a no-deal Brexit scenario in preference to what it sees a corrupting the integrity of the single market. A Politico article cites EU officials and diplomats essentially calling Johnson's bluff on their expectation that the UK would quickly turn supplicant as the painful reality of post-no-deal hit home. At some point -- and this view assumes that the pain of a no-deal would force the UK to make concessions, if it came to that -- the pound looks likely to stage a sharp recovery rally. Even a 10% rally would only partially unwind the discount the currency has been trading with since the vote to leave the EU back in 2016. Buying a six-month out-of-the-money call option in GBP-USD, or an equivalent put option for EUR-GBP, looks a good move.

    [USD, CHF]
    EUR-CHF printed a fresh 26-month low at 1.0820 yesterday, extending what has been a five-month bear trend, reflecting in part demand for the Swiss Franc's as a safe haven and in part as markets factor in looser ECB monetary policy. 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 has retreated to the lower 1.3300s after yesterday posting a two-and-a-half month high at 1.3382. Weak U.S. data revived expectations for a more committed Fed easing path, which weighed on the Greenback. We still expect the pairing to find a footing, with the Canadian Dollar being 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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