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By XE Market Analysis September 27, 2019 7:32 am
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    XE Market Analysis: North America - Sep 27, 2019

    The dollar was showing a mixed performance on the day heading into the New York interbank open, having printed a fresh 28-high against the euro following another round of sub-forecast Eurozone data, an 18-day low against the pound at the prompt of dovish BoE-speak, a nine-day high against the yen, which underperformed as stock markets rallied during the European morning session, while at the same time losing ground to the Australian and Canadian dollars. EUR-USD edged out a fresh 28-month low at 1.0904 and EUR-JPY a three-week low at 117.44. EUR-CHF posted a two-day low, though remained shy of the three-week low seen on Wednesday at 1.0832. The September Eurozone ESI economic confidence slumped to 101.7 from 103.1 in the previous month, much weaker than expected headline and the lowest number since February 2015. There was also an unexpected deceleration in preliminary French HICP inflation, as well as sharp declines in German import prices and French producer prices. EUR-GBP also saw a two-day low before turning higher following dovish remarks by BoE MPC member Suanders, who said that a rate cut is now "quite plausible." Cable printed a low at 1.2271. USD-JPY lifted above yesterday's peak in making this the third consecutive day of higher highs. EUR-JPY has also rose out of the three-week lows. The fresh declines in the Japanese currency came as stock markets in Europe rallied. The Stoxx 50 was showing a 0.4% gain at the time of writing, while the S&P 500 was up by 0.3%. Hopes are running upward into the next round of high level face-to-face meetings between the U.S. and China (due the week after next). This fits the pattern in the lead up to previous rounds of so far fruitless trade talks. Perhaps this time will be different, or perhaps not.

    [EUR, USD]
    EUR-USD edged out a fresh 28-month low at 1.0904 and EUR-JPY a three-week low at 117.44. The cross quickly recouped to levels around 117.60-65 as the yen came under pressure. EUR-CHF posted a two-day low but remained shy of the three-week low seen on Wednesday at 1.0832. EUR-GBP also saw a two-day low before turning higher following dovish remarks by BoE MPC member Suanders. We expect EUR-USD's bear trend, which has been in play since early 2018, to remain in play. The U.S. economy and Wall Street continues to hold up relatively weak -- although showing signs of softening and although a confluence of issues of potentially economy-distrupting proportions (trade warring, Iran and oil prices, presidential impeachment, Brexit) hang over the horizon like a dark cloud -- while data out of the Eurozone this week has fanned fears of recession. Today's September Eurozone ESI economic confidence slumped to 101.7 from 103.1 in the previous month, much weaker than expected headline and the lowest number since February 2015. Earlier in the week, the preliminary September Eurozone PMI readings were striking for failing to show an expected improvement and instead showing a marked contraction in manufacturing activity, with service sector activity also slowing sharply, leaving the composite at just 50.4, barely above the 50 point no change mark.

    [USD, JPY]
    USD-JPY lifted above yesterday's high making this the third consecutive day of higher highs. EUR-JPY has also risen out of the three-week low it printed earlier, during the Tokyo session. The fresh declines in the Japanese currency come with stock markets in Europe rallying. The Stoxx 50 is presently up by 0.4%, while the S&P 500 is showing a 0.2% overnight-session gain. Dovish remarks from BoE MPC member Saunders, and a continuing show of conciliatory rhetoric from U.S. and China officials, have fed a bullish vibe in stock markets, offsetting a weak ESI economic confidence reading out of the Eurozone. This in turn has led to an offered bias in the Japanese currency, which has a long-standing inverse correlation with global stock markets. USD-JPY, to take a step back, has been trading within an approximate rate of 107.50-108.0 after rallying out of the 34-month low seen in late August at 104.45.

    [GBP, USD]
    The pound took a spill after dovish BoE-speak with MPC member Saunders, who by reputation and track record is by no means a dove, said that a rate cut is now "quite plausible"-- and even in the event that the UK avoids s no-deal Brexit scenario. This marks a shift in BoE guidance which has up until now remain committed to gradual tightening over the policy horizon on the proviso that the Brexit process is smooth and orderly. The BoE had already noted the detrimental effects of dragging-on Brexit uncertainty at its policy meeting earlier in the month, along with more challenging global economic conditions. Cable dove to an 18-day low at 1.2271, extending the correction from the two-and-a-half-month high seen last Friday at 1.2582. On the UK political front, there is a peculiar situation, with the prime minister demanding an out-of-cycle general election and the opposition refusing it -- for now. 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. The October-19 date is important as, if Johnson has failed to secure a deal with the EU by then, it is the date that would trigger the new law (the Benn bill) that will extend Brexit to January 31. A general election is coming, in November or December. This should mark the beginning of Brexit finally being resolved. All options remain open, ranging from a no-deal Brexit, to Brexit with a deal and multiyear transitory phase, to Brexit cancelled scenario. The pound is continuing to trade with about a 15% discount against levels prevailing ahead of June 2016 EU membership referendum.

    [USD, CHF]
    EUR-CHF has find a toehold after five consecutive days of decline, which culminated in a three-week high being printed on Wednesday at 1.0832. 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 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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