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By XE Market Analysis September 23, 2019 6:55 am
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    XE Market Analysis: North America - Sep 23, 2019

    The Dollar saw a two-week low against the Yen, but otherwise held steady-to-firmer, gaining most notably against the Euro and the Pound, the former underperforming following sub-forecast Eurozone PMI data and the latter taking a rotation lower after UK Prime Minister Johnson downplayed near-term prospects for a breakthrough in his negotiations with EU leaders on Brexit. The narrow trade-weighted USD index (DXY) edged out an 11-day high at 98.83 as EUR-USD printed an 11-day low, at 1.0966. The Japanese currency saw a rekindled safe-haven bid as what had been a sputtering price action in global stock markets turned more assuredly downward during the European morning session. The pan-Europe Stoxx 600 equity index was showing a 0.9% decline heading into the lunch break. The Canadian currency came under pressure as oil prices posted a fresh correction low. News that some of Saudi's crude production and distribution facilities will be back up and running as soon as next week weighed on crude pries. Front-month WTI crude was down 0.6% heading into the New York interbank open, at $57.76, still remaining over 5% up from pre-attack levels. USD-CAD posted a five-day high at 1.3303.

    [EUR, USD]
    The Euro has dropped concomitantly with Bund yields following disappointing preliminary PMI data out of the Eurozone. Both EUR-USD, EUR-JPY and EUR-CHF have all hit 11-day lows. Eurozone PMI readings for September failed to show the expected improvement and instead showed a marked contraction in manufacturing activity and a sharp slowdown in services sector growth, that left the composite at just 50.4, barely above the 50 point no change mark. 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 -- 1.76% (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, and relative strength of the U.S. economy, suggests that the U.S. currency is likely to remain underpinned. EUR-USD's low is 1.0966, and the pair's recent major-trend low is at 1.0926.

    [USD, JPY]
    USD-JPY turned lower on Yen outperformance as stock markets in Europe took a sharp turn lower. The pair hit a two-week low at 107.31 before recouping to around the 107.50 mark. AUD-JPY made a near three-week low, extending the decline the cross has seen from week-ago levels to over 2%, reflecting risk aversion due to ratcheting-up Mideast tensions and consequential sputtering in global stock markets (the AUD-JPY cross being a reliable correlator of global stock market direction). With key policy decisions from the FOMC, ECB, BoE, BoJ, and PBoC out of the way, attention turns back to U.S. trade warring, geopolitics and data. With Iran appearing to play hard ball (calling Western nations to "stay away" from the Persian Gulf), the Japanese currency's safe haven character is likely to be in demand in the weeks ahead. On the U.S.-China trade front, high level face-to-face talks will be taking place next week. Normally such discussions initially stir up optimism for a breakthrough before ending in disappointment. With President Trump buoyed by recent data showing the U.S. holding up well, and with still over a year to go before the 2020 presidential election, he may not be as yet disposed to making any concessions, even though Beijing has been lobbing some bones his way (resuming purchases of some agricultural products, for instance).

    [GBP, USD]
    Cable printed a six-day low at 1.2423, putting in some distance from the two-month peak seen on Friday at 1.2582. The pound has fared better against the euro, which dove following much weaker than expected preliminary PMI data out of the Eurozone, though remains down by a net 0.4% against the yen. UK Prime Minister Johnson said that he did not wish "to elevate excessively the belief that there will be a New York breakthrough," with regard to Brexit negotiations, referring to the meetings he has scheduled this week with various EU leaders and officials at the UN General Assembly in New York. Johnson added that there has still been "a great deal of progress" in discussions with the UN, in the latest sign that he is, after all, serious about securing a deal with EU. The major issue remains the Irish border backstop and whether Johnson's plans for "alternative arrangements" would mitigate the need for the backstop clause while not damaging the integrity of the EU's single market or breaking the Good Friday Peace Agreement (which stipulates there being a free flowing Irish border). Two years of negotiating by former Prime Minister May failed to achieve this. We expect the pound will hold in a choppy, overall directionless range for now until there is concrete developments 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]
    The Canadian currency came under pressure as oil prices posted a fresh correction low. News that some of Saudi's crude production and distribution facilities will be back up and running as soon as next week weighed on crude pries. Front-month WTI crude was down 0.6% heading into the New York interbank open, at $57.76, still remaining over 5% up from pre-attack levels. USD-CAD posted a five-day high at 1.3303.

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