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By XE Market Analysis September 6, 2018 7:03 am
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    XE Market Analysis: North America - Sep 06, 2018

    The Dollar traded mostly softer against most of the main currencies, while many emerging market currencies manged to hold their ground today following recent pronounced declines. Amid this was a subtheme of a generally softer Euro, although ranges were limited. Market participants are facing a slew of U.S. data releases due today and tomorrow, highlighted by tomorrow's August employment report, while keeping a weather eye on Canada-U.S. trade discussions and the possibility for an embattled President Trump to raise tariffs on a further $200 bln of Chinese imports after the public consultation period ends at midnight today. China pre-emptively threated reciprocal tariff retaliation should the U.S. make good on its threat (Trump said yesterday that the stage for agreement has not yet been reached, but that talks would continue). EUR-USD turned lower, back to the lower 1.1600s after posting a six-day high at 1.1659. USD-JPY and more especially Yen crosses softened. USD-JPY dipped to a low of 111.17, down from a peak at 111.75, and subsequently settling above 111.30. The biggest mover, once again, has been the AUD-JPY cross, which lost nearly 0.5% in making a 79.81 low and returning focus on the 22-month low that was seen on Monday at 79.52. EUR-SEK rallied after the Riksbank pushed back its rate hike call to December or February from October or December indicated previously. The cross rallied to a three-day peak at 10.6087.

    [EUR, USD]
    EUR-USD turned lower, back to the lower 1.1600s after posting a six-day high at 1.1659. A rise in BTPs, reflecting a optimism about Italian government's budget demands, helped lift the pair from sub-1.1550 levels over the last day, though we still class EUR-USD as being amidst an overall bear trend, one that's been unfolding since mid April. We put greater odds for a sustained move to the downside than to the upside. Incoming U.S. data -- particularly this Friday's August employment report -- should firm-up expectations for a 25 bp Fed hike in December, which would follow an already fully-anticipated 25 bp hike in September. Fed fund futures have been discounting better than 60% odds for a December hike. We would also expect the Dollar to appreciate in the scenario of sustained risk aversion in global markets. EUR-USD has resistance at 1.1694-95.

    [USD, JPY]
    USD-JPY and more especially Yen crosses are softer amid a risk-off themed session amid concerns about emerging market fragility and the next round of U.S. tariffs on Chinese imports. Tech sector underperformance and a reports of a powerful earthquake in Japan have also been in the mix. USD-JPY dipped to a low of 111.17, down from a peak at 111.75, and subsequently settling above 111.30. The biggest mover, once again, has been the AUD-JPY cross, which lost nearly 0.5% in making a 79.81 low and returning focus on the 22-month low that was seen on Monday at 79.52. BoJ ultra-dove Kataoka criticized the recent policy tweak by the central bank, to allow greater flexibility in its yield curve control, arguing that it made the zero percent target unclear while calling for additional monetary stimulus. His remarks had little impact on the Yen. In the scenario that the Sino-U.S. trade war ratchets up, we would expect USD-JPY to decline as safe haven demand for the Yen has tended to outpace that for the Dollar in recent risk-off episodes.

    [GBP, USD]
    Cable has settled in the lower 1.2900s after the Pound experienced choppy trading yesterday, rallying on a Bloomberg report suggesting that Germany had decided to compromise on some Brexit criteria before Berlin seemed to push back on this, saying that Germany still has full trust in EU Brexit negotiator Barnier, who has been leading what has been consistent and united front in Brexit negotiations with the UK. Cable settled lower from the high printed yesterday at 1.2983. Brexit remains a fundamental preoccupation for markets with the British government -- still -- failing to come up with a united approach to negotiations. Ultimately we expect the British government to abandon hopes for a hybrid deal with the EU and accept the reality of having to work on a more traditional bilateral trade deal, which should help it secure a multi-year transition period. How the Irish border issue is resolved in this plan remains a major known unknown, and at this juncture we put greater odds for the Pound to test of the August-15 versus the Dollar low at 1.2725 than a sustained rebound above 1.3000. Support is at 1.2729-30, and resistance at 1.2830-32.

    [USD, CHF]
    EUR-CHF has drifted back under 1.1300 after a three-day upturn stalled at 1.1320 yesterday. A stronger than expected Q2 GDP outcome out of Switzerland, which rose 0.7% q/q with Q1 growth upwardly revised to 1.0% y/y from the 0.6% y/y pace previously reported, gave the franc a lift, with the data inviting market narratives questioning the need for the SNB's ultra accommodative policy. The cross still remains above Monday's 14-month low at 1.1240. An abatement in concerns about the Italian government's budget plans and a steadying in the Turkish lira has seen the franc unwind some of its recently rekindle safe haven premium (which it evidently still has despite the -0.75% deposit rate). SNB Vice Chairman Zurbruegg said last month that the central bank's policy (negative interest rates coupled with tactical forex interventions) was justified in light of the recent (unwanted) demand for the franc.

    [USD, CAD]
    USD-CAD has remained buoyant, near Tuesday's seven-week high at 1.3207, amid the turn lower in oil prices, which is now into a third day of decline, and as market participants warily look on the latest round of trade talks between Canada and the U.S., which recommenced yesterday and are due to run until tomorrow. Any news of a breakthrough on the trade front would likely spark a sharp tumble in USD-CAD. The BoC left policy unchanged yesterday, as had been widely anticipated, which caused little stir in Canadian markets, which will now look to the bank's economic progress report today for more detail on its prognosis of the economy. The BoC yesterday in its post-meeting statement said growth is evolving as expected, while the jump to 3.0% y/y CPI was due to a temporary factors and should slow to 2% by early 2019. The BoC said that core inflation remains firmly around 2%, while wage growth remains moderate, and while the U.S. economy remained robust the bank acknowledged the "elevated tensions" about trade. USD-CAD support at 1.3137-40.

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