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By XE Market Analysis September 12, 2019 6:07 am
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    XE Market Analysis: North America - Sep 12, 2019

    The Dollar has taken a turn lower, losing ground to commodity currencies amid an enduring risk-on phase in global markets, and with the Euro seeing a pre-ECB upward shift during the London morning session. USD-JPY also corrected after posting a fresh six-week high during the Tokyo session. EUR-USD recouped back above 1.1000 after yesterday printing an eight-day low at 1.0985. The pairing is now back to near net unchanged levels from where it was a week ago. The focus is on the upcoming ECB policy announcement, which is widely expected to bring further easing measures. We are expecting a small 10 bp cut in the deposit rate to -0.50%, with a tiered system to limit the impact of negative rates. There is some scope for market-moving impact. The event risk has been that the package of measures will fall short of what markets had until recently been pricing in, though there has over the last week been some down-adjusting in stimulus expectations. Elsewhere, USD-JPY printed a fresh six-week high at 108.16 ahead of the London interbank open before settling back under 108.0. AUD-JPY and GBP-JPY also posted new six-week peaks, though EUR-JPY has so far failed to surpass the one-month high the cross saw yesterday. The Yen's descent comes amid ongoing risk-on conditions in global markets, with further conciliatory moves happening on the U.S.-China trade front (Trump announcing a two-week delay in the latest round of tariffs on Chinese goods). Key U.S. data is looming up, too, with CPI and retail sales data are up tomorrow and Friday, respectively. We expect the data to affirm an ongoing benign price picture and a flat August performance in the retail sector, following strong July activity.

    [EUR, USD]
    EUR-USD took a rotation lower, to the 1.1020 area from levels above 1.1050, which was driven by broad, albeit moderate, declines in the common currency. The low for the week, seen on Monday at 1.1015, looks vulnerable. Market narratives are pointing to possible position adjusting into tomorrow's ECB policy announcement, along with German Chancellor Merkel's pouring cold water on the idea of fiscal stimulus. With the remarks of Fed Chair Powell still reverberating -- that the U.S. outlook was still a "favorable" one, with the economy "in a good place" -- EUR-USD looks likely to retain a downward bias for now. U.S. CPI and retail sales data are up tomorrow and Friday, respectively, where we expect an ongoing benign price picture to be painted and a flat performance in the retail sector. Such outcomes would hardly provide a dollar-buying cue, but would neither prompt to hit-the-sell-button reaction. A big focus will be on tomorrow's ECB meeting, which is widely expected bring further easing measures. The event risk is that the package of measures will fall short of what markets have been pricing in, since, without regulatory changes, there is limited room for government bond purchases to be extended significantly. We are expecting a small 10 bp cut in the deposit rate to -0.50%, with a tiered system to limit the impact of negative rates. As for EUR-USD, overall we retain a low-conviction bearish view for the week ahead. Support comes in at 1.0998-1.1000.

    [USD, JPY]
    USD-JPY printed a fresh six-week peak at 107.84 in what is now a third consecutive day of ascent, which is part of what is now a third consecutive week of gains. AUD-JPY and EUR-JPY posted six-week and one-month highs, respectively, while other Yen crosses also rose as the Japanese currency continued to see its safe haven premium unwind. News that hawkish U.S. national security advisor, John Bolton, was fired by Trump (Bolton claims he resigned), has been something of a sentiment shifter in markets, maintaining buoyancy in global stock markets while sparking a 1%-pus dive in oil prices. Expectations for stimulus of the fiscal kind in Europe and China are also in the mix, offsetting a recent descaling in expectations for stimulus of the monetary kind by the Fed and ECB. Then there is the recent apparent de-thawing in U.S.-China relations, with face-to-faces set for early next month and with U.S. Treasury Secretary Mnuchin signalling earlier in the week "lots of progress on talks"." We have, of course, many times heard such upbeat rhetoric in the many previous rounds of the so-far fruitless trade discussions, though apparently the show of optimism has still enough to influence near-term sentiment. For now, the Yen looks likely to remain on a downwardly bias track.

    [GBP, USD]
    Sterling has settled since posting six-week highs against the dollar, euro and yen, among other currencies, earlier in the week. Overall, the Pound's price action is remaining buoyant, reflecting the sharply downsized odds for a no-deal Brexit scenario as soon as October 31 (with a no-deal at a later date contingent on how the upcoming UK election turns out). It is now legally forbidden for the UK to exit the EU on Halloween without a deal on divorcing terms, unless Parliament votes for it, which isn't going to happen. Some hardliner Brexiteers have urged PM Johnson to fulfil his "do or die" promise and become a "martyr" to the cause by moving to take the UK out of the EU on October 31, which could lead to his imprisonment for contempt, though much as speculation that the Queen would deny giving the royal ascent to the anti-no-deal legislation, such "hopes" won't likely come to anything. Boris looks to be trying to salvage a bad situation by showing some formerly lacking vigour in trying to persuade the EU to throw him some bones of concession on the Irish backstop, though none have come his way as yet -- and nor are any likely to come. EU officials, including the Irish PM on Tuesday, have been making clear that they are prepared and willing to continue the negotiation on the other side of a no-deal Brexit, not unreasonably anticipating that the reality of a no-deal circumstance would be much more painful for the UK (population about 65 mln) than for the EU-27 (population about 450 mln).

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a six-week high on Tuesday at 1.0968, which extended the rebound from the 26-month low seen on Tuesday at 1.0811. The pickup in risk appetite in global markets, and reduced risk for a no-deal Brexit, has taken the pressure off the ECB as it heads into next Thursday's government council meeting. This has helped float the Euro while concurrently fostering 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 recouped to around 1.3200 after posting a new six-week low on Tuesday, at 1.3134. A near 4% decline in oil pries from Tuesday's peak, which was catalysed by the departure of hawkish-on-Iran U.S. national security advisor, John Bolton, has weighed on the Canadian currency relative to its U.S. counterpart and other commodity currencies, which have for the most part been benefiting from the improved backdrop of risk appetite in global markets. The divergence has lifted AUD-CAD into six-week terrain, with the cross showing a gain of nearly 1% from week-ago levels. The cross has been in a distinct bear trend since April, so the rebound may be tempting for contrarian speculators (though AUD-JPY would surely be a better route). USD-CAD has resistance at 1.3234-35.

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