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By XE Market Analysis September 6, 2019 7:29 am
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    XE Market Analysis: North America - Sep 06, 2019

    The Dollar majors have remained within respective Thursday ranges, though some yen and Swiss franc cross rates have clawed out fresh highs, with GBP-JPY and AUD-CHF, for instance both seeing new one-month highs. EUR-USD has settled below 1.1050 after yesterday printing an eight-day high at 1.1084, which extended the rebound from the 28-month low that was seen earlier in the week at 1.0926. An unexpected contraction in German industrial production in July today had little impact. The Yen has this week seen its safe haven premium abate, floating USD-JPY, yesterday, a one-month high at 107.23. The Pound has settled after rallying by over 3% against the dollar from the major trend lows that were seen on Tuesday. The no-deal-if-that's-what-it-takes prime minister, Johnson, has lost a string of parliamentary votes this week, and, with his Tory party losing its working majority (which took just one defector, who publicly walked across the floor to join the pro-EU Liberal Democrats), and with the 21 Tory rebels who voted against the government having been expelled, his position is now untenable. The Labour Party, the principal opposition in the UK, has made it clear they won't support PM Johnson's call for a new general election until after the no-deal bill is passed (which looks likely, but not a given), and not until October 19, which is the date that a 3-month Brexit extension would become the legal default -- assuming, as looks 100% certain, there hasn't been a new Brexit deal agreed in Parliament or that Parliament doesn't vote in favour a no-deal exit, and assuming that a wary EU would permit another extension.

    [EUR, USD]
    EUR-USD has settled below 1.1050 after yesterday printing an eight-day high at 1.1084, which extended the rebound from the 28-month low that was seen earlier in the week at 1.0926. A stronger ADP jobs report and a rebound in the services ISM out of the U.S. gave the greenback a boost before market participants hunkered down into today's jobs report. An unexpected contraction in German industrial production in July today had little impact. Focus now turns to today's release of the August U.S. payrolls report, which is likely to show resilience in the labour market. We expect a 165k headline payroll rise that about matches the 164k July increase in July, with the jobless rate ticking down to 3.6% from 3.7%, alongside gains of 0.3% for both hours-worked and hourly earnings. EUR-USD has resistance at 1.1050-51, and support at 1.0998-1.1000.

    [USD, JPY]
    The Yen has continued to see its safe haven premium abate, floating USD-JPY, yesterday, a one-month high at 107.23. Yen crosses have also been buoyant. 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 today's August U.S. payrolls report to show resilience in the labour market, we expect USD-JPY to remain directionally biased to the upside. 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 has settled after rallying by over 3% against the dollar from the major trend lows that were seen on Tuesday. The no-deal-if-that's-what-it-takes prime minister, Johnson, has lost a string of parliamentary votes this week, and, with his Tory party losing its working majority (which took just one defector, who publicly walked across the floor to join the pro-EU Liberal Democrats), and with the 21 Tory rebels who voted against the government having been expelled, his position is now untenable. The Labour Party, the principal opposition in the UK, has made it clear they won't support PM Johnson's call for a new general election until after the no-deal bill is passed, and not until October 19, which is the date that a 3-month Brexit extension would become the legal default (assuming, as looks 100% certain, there hasn't been a new Brexit deal agreed in Parliament or that Parliament doesn't vote in favour a no-deal exit). Labour reportedly wants to delay an election until after October 31, thinking it will damage Johnson politically as he would have failed to deliver Brexit "no ifs or buts" by Halloween. This should keep the pound underpinned, for now, though the spectre of a no-deal Brexit hasn't disappeared as Johnson and his Tory party could of course still win in an election.

    [USD, CHF]
    EUR-CHF has rallied quite strongly over the last two days, with the pickup in risk appetite in global markets taking the pressure off the ECB as it heads into next Thursday's government council meeting. This has helped float the Euro and at the same time see an unwinding in the Franc's safe haven premium, such as it is given the punishing -0.75% deposit rate in Switzerland.

    [USD, CAD]
    USD-CAD has remained heavy after posting a 24-day low at 1.3191 yesterday, which extended the correction from the two-and-a-half month high that was printed on Tuesday at 1.3382. The recouperation in risk appetite in global markets, with the U.S. and China headed back to the negotiating table, has been a positive for the Canadian Dollar, and other commodity currencies. Oil prices are up over 2% from week-ago levels (WTI futures). Resistance comes in at 1.3270-73. The dual releases of U.S. and Canadian employment reports will naturally bring directional risk to USD-CAD. We expect the August U.S. payrolls to show resilience in the labour market, anticipating a a 165k August headline 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. The Canadian employment report has us expecting a 30k gain in August after the 24.2k drop in July, with the jobless rate holding steady at 5.7%. As-expected data shouldn't have much bearing on USD-CAD.

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