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By XE Market Analysis September 5, 2019 7:57 am
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    XE Market Analysis: North America - Sep 05, 2019

    The Pound surfed a wave of Brexit relief as the odds for a no-deal Brexit ebb back some in light of political developments in the UK. Cable was a little off its highs heading into the New York interbank open, but still showing a 0.7% on the day, and was up over 3% from the major-trend lows that were seen on Tuesday. The biggest movers have been GBP-JPY and GBP-CHF, which are showing gains of 0.9% and 1.0%, respectively, which partly reflect an unwinding in the the Yen and Franc's safe haven premiums today. EUR-USD lifted into one-week high terrain, having breached above last Friday's high at 1.1051. The pair looked to have been getting a lift by a sharp rally in Cable, while the Dollar itself was trading mostly softer against most of the other main currencies, losing ground to commodity currencies, including the Australian and Canadian dollars, and other currencies with high beta characteristics, amid a backdrop of rallying global stock markets. Yen underperformance lifted USD-JPY to a three-week high at 106.75, concomitant with rallying global stock markets on news that the U.S. and China announced that they would resume trade negotiations early next month.

    [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 continued to see its safe haven premium abate, floating USD-JPY a three-week high at 106.75, and AUD-JPY and EUR-JPY ascend into respective three- and one-week high terrain. This comes with global stock markets rallying on news that the U.S. and China announced that they would resume trade negotiations early next month. An ebb in the risk for a no-deal Brexit following political developments in the UK has also been a tonic in the mix of global investor sentiment. Things could change in a flash, of course, and there remains concerns that the U.S. and major European economies are heading toward recession, and the Chinese economy is amid structural downshift in its potential growth profile. For now, given the thawing in U.S.-China relations, and given our expectation for tomorrow's August U.S. payrolls report to show resilience in the labour market, we expect USD-JPY to remain directionally biased to the upside. Support comes in at 106.15-17. Regarding the jobs report, we expect a 165k August nonfarm payroll rise that about matches the 164k July increase, with the jobless rate ticking down to 3.6% from 3.7%, alongside gains of 0.3% for both hours-worked and hourly earnings. Initial claims remained firm in August, while most consumer confidence eased to still firm levels. Most producer sentiment measures rebounded slightly, but vehicle assemblies could moderate from an elevated June-July pace.

    [GBP, USD]
    The Pound is surfing a wave of Brexit relief as the odds for a no-deal Brexit ebb back some in light of political developments in the UK. Cable is a little off its highs but showing a 0.7% on the day so far, and is up over 3% from the major-trend lows that were seen on Tuesday. The biggest movers have been GBP-JPY and GBP-CHF, which are showing gains of 0.9% and 1.0%, respectively, which partly reflect an unwinding in the the Yen and Franc's safe haven premiums today. With legislation that would block a no-deal Brexit on October 31 looking likely to pass (already passing in the House of Commons last night), and PM Johnson's position now untenable, an election on October 15 is looking inevitable (Johnson has already submitted a motion for one, though opposition parties are insisting that the anti no-deal legislation is passed before agreeing to one). The risk of a no-deal Brexit could still return should Johnson's Tory party win the election, and would be a veritable probability if he was forced to make a coalition with the Brexit Party. But even then it would not be unreasonable to anticipate that the pain of a no-deal reality would see the UK to quickly seek concessions from Brussels, which in such an eventuality would return support to the Pound, which has been trading at a 15%-plus discount in trade-weighted terms versus levels seen before the referendum on EU membership back in 2016.

    [USD, CHF]
    EUR-CHF printed a fresh 26-month low at 1.0811 yesterday, extending what has been a five-month bear trend, which has partly reflected demand for the Swiss Franc's as a safe haven, and partly the markets factoring in of looser ECB monetary policy (to be delivered at its governing council meeting next Thursday). We retain a bearish view of EUR-CHF.

    [USD, CAD]
    USD-CAD has posted to a 23-day low at 1.3206, extending the correction from the two-and-a-half month high that was printed on Tuesday at 1.3382. A backdrop of rekindled risk appetite in global stock and commodity markets, and particularly the 4.5% low-to-close rally in oil prices yesterday (front-month WTI futures), have stimulated demand for the Canadian Dollar. Resistance comes in at 1.3270-73.

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