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By XE Market Analysis September 20, 2019 6:50 am
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    XE Market Analysis: North America - Sep 20, 2019

    The Dollar majors have seen some chop but, for the most part, little net directional changes. EUR-USD has settled to an orbit of the 1.1050 level, earlier printing an intraday high at 1.1067 before gravitating back below 1.1050. The pair has remained comfortably within its range from yesterday. USD-JPY recouped to the 108.00 level after earlier eking out a two-day low at 107.76. The pairing has over the last weeks been trading without directional certainty, since rallying out of the late August major-trend low at 104.45. More of the same looks likely for now. The Pound saw some chop, giving back earlier gains as Brexit noise buffered the currency. Irish Foreign Minister Coveney catalyzed the correction by saying "we are not close to a deal right now," and that "there is still quite a wide gap between what the British government had been talking about in terms of the solutions they are proposing and what I think Ireland and the EU will be able to support." That has poured cold water on remarks by President of the European Commission Juncker, who confirmed that he has received written draft documents of the UK government's alternative arrangement proposals for the Irish backstop, and that a deal was still possible in time for the October 31 deadline. The pound was heading into the New York interbank market at near net unchanged levels on the day versus the Dollar, Euro and Yen. EUR-CHF has tracked lower since the SNB's policy announcement yesterday, extending today to three-day lows under 1.0950.The New Zealand dollar dropped by over 0.5% on warnings about weakness in the banking sector from a ratings agency.

    [EUR, USD]
    EUR-USD has settled to an orbit of the 1.1050 level, earlier printing an intraday high at 1.1067 before gravitating back below 1.1050. The pair has remained comfortably within its range from yesterday. In the bigger picture, EUR-USD is amid 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 -- 1.78% (approx) 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 most liquid risk-free asset market in the world, suggests that the U.S. currency is likely to remain underpinned. EUR-USD has resistance at 1.1082-86.

    [USD, JPY]
    USD-JPY recouped to the 108.00 level after earlier eking out a two-day low at 107.76. The pairing has over the last weeks been trading without directional certainty, since rallying out of the late August major-trend low at 104.45. More of the same looks likely for now. The BoJ's board met on policy this week and left policy on hold, sticking with the existing monetary stimulus, as had been widely anticipated. The bank also called for a re-examination of prices and the economy at the October meeting, signalling to markets that there could be action down the line. Policymakers highlighted the need to pay close attention to the possibility of losing momentum toward its 2% target as global growth slows.

    [GBP, USD]
    Sterling is holding above lows seen in the wake of cooler than expected UK inflation data yesterday. Cable recouped above 1.2450, up from the post-data low at 1.2439. UK August CPI came in at 1.7% y/y, down from 2.1% y/y in July and well off the median forecast for 1.9% y/y. The dip comes despite a 5%-plus weakening in the trade-weighted value of the pound from August 2018 levels, and despite UK wage growth hitting a near 10-year high recently. The policy implications of the data are also dampened by the fact that the BoE is likely to remain on the sidelines with the Brexit process coming to crucial phase of resolution, with the the outcome and potential impact on the UK economy still uncertain.The BoE meets today, and is widely expected to leave policy settings unchanged. Taking a step back, the pound is trading about 4% up from recent trend lows. We don't see too much scope for sustained gains, however, with markets likely to continue to demand a hefty Brexit discount into the upcoming election, which will likely be late November or early December. The president of the European Commission, Juncker, said yesterday that the risk of a no-deal Brexit is "palpable." Although the UK Parliament has legislated against it on October 31, a no-deal scenario remains a possibility at a later date, depending on how the upcoming election in the UK turns out. EU officials have also been signalling that they are prepared to take negotiations to the "other side" of a no-deal Brexit rather than cede on the Irish backstop, which has been the fundamental block to finding a deal on Brexit.

    [USD, CHF]
    EUR-CHF has tracked lower since the SNB's policy announcement yesterday, extending today to three-day lows under 1.0950. The Franc has also gained on the Dollar over this period. The 26-month seen in early September is at 1.0811. The SNB kept both interest rates and its language on the currency unchanged, as widely expected. The policy rate and deposit rates were both left at -0.75% and the central bank repeated that that Franc remains "highly valued", while highlighting fragile markets and affirming the commitment to intervene in currency markets if needed. There was one surprise in the statement as the SNB changed the way the negative deposit rate is calculated with a new exemption threshold, designed to reduce costs for institutions as the global low-rate environment has "become more entrenched and could persist for some time yet". This means that the SNB followed the ECB, which also took steps to limit the impact of negative rates on banks, and the step may also prepare the ground for a mid-meeting move in Switzerland should Brexit developments turn sour. The growth forecast for this year has already been cut to just 0.5-1.0% from around 1.5% expected at the time of the June policy review, with the SNB highlighting that global risks remain tilted to the downside.

    [USD, CAD]
    USD-CAD has settled in the mid 1.3200s, off from the two-week peak seen on Wednesday at 1.3310. News of the drone attack on Saudi oil facilities had been taken as CAD buying cue by markets in early Asia on Monday, though the trade ran out of steam as oil prices steadied and then fell sharply on a report that suggested production could recover much quicker than initially feared. Saudi Arabia has also stated 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 is fragile, especially with the U.S. openly considering taking military action against Iran, which it suspects of being involved. The Fed's less dovish than expected guidance following its as-expected 25 bp rate cut has also been a support for USD-CAD, which we expect will remain underpinned.

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