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By XE Market Analysis September 26, 2019 7:31 am
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    XE Market Analysis: North America - Sep 26, 2019

    The dollar printed fresh highs against the euro and sterling, though remained below yesterday's highs against the yen and Canadian and Australian dollars, among other currencies. EUR-USD printed a 28-month low at 1.0922, reaffirming a the long-germ bear trend the pairing has been in since early 2018. Unexpected news that ECB board member Lautenschlaege is leaving the central bank is the latest change in the ranks of policymakers that is giving the executive board a decidedly more dovish look. Cable fell to a new two-week low at 1.2302, extending the correction from the two-and-a-half-month high seen last Friday at 1.2582. The new lower low affirms what can be viewed as being a nascent bear phase. Big political developments and big debate and big news noise erupted in the UK yesterday, but not a lot that would appear to have any bearing on how the unresolved Brexit process will unfold, although underscoring how divided and distracted the political system is. USD-JPY, meanwhile, has traded softer after rising yesterday. USD-CAD continued to gravitate around the 1.3250 level, with the pair having lacked clear directional impulse for over a week now.

    [EUR, USD]
    EUR-USD printed a 28-month low at 1.0922, reaffirming a the long-germ bear trend the pairing has been in since early 2018. We expect this trend will remain in play. Resistance comes in at 1.0950.

    [USD, JPY]
    USD-JPY is softer today after rising yesterday. Yesterday was all about a risk-back-on vibe, which supported the dollar. The smoking gun of the evidence in the telephone transcript presented by the White House in response to the whistleblower allegations about President Trump's dealings with Ukraine weren't so smoky after all (perhaps not fumeless, and the Democrats impeachment inquiry will continue), and the mood music coming from U.S.-China and U.S.-Japan trade negotiations become more upbeat. Oil prices have also more than given back the gains sparked by news of the attack on Saudi crude facilities, and the Trump adminstration has made clear it is looking for a diplomatic solution to the tensions with Iran. This left markets focusing on fundamentals, particularly the prevailing bullish Wall Street narrative -- S&P 500 trading below long-term average in price/earnings terms and dividend yields being higher than the 10-year T-note yield. The S&P 500 is now back to within 50 points of its all-time highs. The mood in Asia has been less bullishly robust. The fallout from trade warring has thus far been been greater on the Chinese economy and some other Asia economies than it has been on the U.S. economy. Overall, the dollar looks likely to retain an underlying upward bias against most currencies, including the yen.

    [GBP, USD]
    The pound has carved out fresh two-week lows versus both the dollar and yen, though has so far remained above yesterday's low in the case against the euro. Cable's low is 1.2302, which extends the correction from the two-and-a-half-month high seen last Friday at 1.2582. The new lower low in Cable affirms what can be viewed as being a nascent bear phase. Big political developments and big debate and big news noise erupted in the UK yesterday, but not a lot that would appear to have any bearing on how the unresolved Brexit process will unfold, although underscoring how divided and distracted the political system is. A lot is at stake, including the possible devolution of the United Kingdom, along with Brexit. Prime Minister Johnson accepted the Supreme Court's ruling that his decision to suspend Parliament for five weeks was unlawful while stating that he disagrees with it, and politicising it with a full throttled hamming-up the people vs parliament narrative, roiling up the pro-Brexit base ahead of an upcoming election. The opposition is sticking with its tactical refrain from agreeing to an election or staging a confidence vote until the avoidance of no-deal Brexit on October 31 has been assured. If Johnson fails to secure a deal with the EU, the new law (the Benn bill) that will extend Brexit to January 31 will kick in on October 19. The opposition is in part concerned that calling an election before October 19 would leave room for Johnson to trigger a no-deal Brexit before the election has taken place, while they are also wanting to force Johnson to break his "do or die" promise to deliver Brexit by October 31, thinking this will cost him votes at the election. Regardless, a general election is coming, in November or December. This should mark the beginning of Brexit finally being resolved.

    [USD, CHF]
    EUR-CHF has find a toehold after five consecutive days of decline, which culminated in a three-week high being printed yesterday at 1.0832. The cross has since recouped to levels above 1.0860. The declines over the last week follow the SNB's quarterly policy announcement last week, which will be frustrating to Swiss policymakers given their chronic concerns of the franc's chronic state of overvalue-ment (which regularly tops the Economist magazine's Big Mac purchasing parity comparison of currencies). The 26-month seen in early September at 1.0811 has so far remained untroubled, but still looks vulnerable.

    [USD, CAD]
    USD-CAD has continued to gravitate around the 1.3250 level, with the pair lacking clear directional impulse, which is been much the case for over a week now. The recent pronounced drop in U.S. Treasury yields (down nearly 25 bp from September 13) hasn't been as bearish a force as it might have been with the Canadian dollar having lost support from oil prices, which have now more than given back the price gains seen in the immediate wake of the attack on Saudi crude production and distribution facilities. The pledged release of strategic crude reserves in the U.S., China and Japan, along with a quicker than expected path to the resumption of crude production in the afflicted sites in Saudi Arabia have brought crude pries down.

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