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By XE Market Analysis September 17, 2019 7:14 am
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    XE Market Analysis: North America - Sep 17, 2019

    The Dollar has traded mostly firmer, gaining around 0.5% versus the day's underperformer, the Australian Dollar, and showing modest gains versus the Yen, Canadian Dollar and Sterling, among other currencies, while holding steady versus the Euro. The U.S. currency has been attracting a degree of safe haven demand amid a sputtering price action in global stock markets and associated concerns about the geopolitical situation in the Mideast following the drone attack that took out Saudi facilities that account for 5% of global crude output. The narrow trade-weighted USD index (DXY) clocked a five-day high at 98.74. EUR-USD has settled near the 1.1000 level after yesterday dropping from levels above 1.1050. There were mixed leads out of the Eurozone, with the latest German ZEW investor survey surpassing expectations one on hand, and a spike in BTP yields amid fresh concerns about the shifting political landscape in Italy on the other. USD-JPY clocked a seven-week high at 108.37, which the pair now amid its fourth consecutive week of ascent. The Australian Dollar ebbed to an 11-day low versus the U.S. Dollar, at 0.6833. Several factors weighed on the antipodean currency. First, the RBA minutes from the September policy meeting showed that the central bank remains disposed to further easing, and second, Australian consumer sentiment fell to a two-year low. At the same time, China's PBoC also took its foot off the stimulus pedal a little, refraining from rolling over nearly CNY 300 bln in money market instruments today.

    [EUR, USD]
    EUR-USD has settled near the 1.1000 level after yesterday dropping from levels above 1.1050. There were mixed leads out of the Eurozone, with the latest German ZEW investor survey surpassing expectations one on hand, and a spike in BTP yields amid fresh concerns about the shifting political landscape in Italy on the other. Dollar firmness was in the mix yesterday as markets reacted to weekend news of the attack on Saudi oil facilities, which served ot reinvigorate a long-term moderate downtrend, the latest leg of which has been in play since the late June highs above 1.1400. The favourable yield carry of the Dollar -- 1.8% for the 10-year U.S. T-note vs nearly -0.5% for the benchmark Bund and -0.15% for the 10-year JGB -- along with the fact that the Treasury market stands as the biggest, most liquid risk-free asset market in the world, means that the U.S. currency is likely to remain underpinned, much to President Trump's chagrin, no doubt. This view assumes that the Fed doesn't abandon prudent fiat-currency management and resists pressure from the executive for gung-ho on monetary easing. This view also assumes that the Fed hikes by no more than 25 bp following its FOMC meeting this week, and continues to frame easing as a mid-cycle adjustment rather than the beginnings of a committed cycle of easing. This will be juxtaposed to last week's ECB promise of open-ended asset purchases. EUR-USD has resistance at 1.3035-38, and support at 1.0975.

    [USD, JPY]
    USD-JPY clocked a seven-week high at 108.37, which the pair now amid its fourth consecutive week of ascent. The gains have mostly reflected an unwinding in the yen's safe haven premium as both the U.S. and China show signs of wanting to come to some sort of resolution on the trade front. Broader demand for dollars has also been in the mix. USD-JPY has support at 107.67-70, and resistance at 108.65-67.

    [GBP, USD]
    The Pound has come under moderate pressure today, correcting some after rallying over the last several weeks with the UK Parliament now having outlawed a no-deal Brexit on October 31. A Halloween Brexit with a deal is still possible, but looking unlikely at this stage, with a further pushing back of the Brexit deadline, to January 31 next year, looking more likely. A general election is coming, which will be the final battle in the UK's civil warring on Brexit. Sterling, while up over 4% from the early-September major-trend low versus the Dollar, isn't likely to see further sustained gains, with markets still likely to demand a Brexit discount as the possibility of a no-deal exit still remains, depending on who triumphs at the election (a coalition government formed by the Conservative and Brexit parties, which is a possibility even if it doesn't as yet look like a probability, would lead to a no-deal exit from the UK becoming a reality).

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a six-week high last Friday at 1.0974, which extended the rebound from the 26-month low at 1.0811. The pickup in risk appetite in global markets, and reduced risk for a no-deal Brexit, has fostered 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 took a short sharp dip to a 1.3210 low before recouping to the mid 1.3200s. News of the drone attack on Saudi oil facilities was taken as buying cue by markets in early Asia, though the trade ran out of steam as oil prices steadied. Saudi Arabia said that it will tap into stockpiled crude to maintain exports for a period, while the U.S. and Japan have said they will release oil reserves if necessary. Nonetheless, the geopolitical situation in the Mideast has deteriorated, especially with the U.S. openly considering taking military action against Iran, which it suspects of being involved. USD-CAD has resistance at 1.3287-90.

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