XE Market Analysis: Europe - Aug 08, 2019

Comparative calm, and comparatively narrow ranges have been ensuing so far today. The main theme has been a moderate decline in the Yen amid a backdrop of recouping stock markets. USD-JPY has settled in the lower 106.00s, above the seven-month low seen yesterday at 105.49. AUD-JPY, EUR-JPY and other Yen crosses have also posted moderate gains as the Japanese currency saw some of its safe haven premium unwind. EUR-USD, meanwhile, has continued to orbit the 1.1200 level, and the Pound has by recent standards been trading with uncharacteristic steadiness. The New Zealand Dollar has found its feet after yesterday's cliff dive following the RBNZ's first rate cut of 50 bp magnitude since the immediate aftermath of 9/11. NZD-USD has settled near the 0.6450 mark, up from yesterday's three-and-a-half-year low at 0.6377, but remains over 1% down from the levels prevailing ahead of the RBNZ's policy announcement. Stock markets in Asia and S&P 500 futures have traded tentatively higher. Better than expected China trade numbers, driven by a rebound in exports, helped buoy investor spirits, and while the official fixing of the onshore yuan today was at a new 10-year plus low against the dollar, at 7.0039 (versus 6.9996 yesterday), it was still a little firmer than markets had been anticipating. There was also news that Japan will allow some exports of semiconductor manufacturing material to South Korea, signalling a cooling in tensions between the two countries over trade.

[EUR, USD]
EUR-USD continued to orbit the 1.1200 level, down on the near three-week high seen earlier in the week at 1.1249, which was the culmination of a four consecutive session ascent as the pair rebounded from the 27-month seen last week at 1.1027. President Trump's ratcheting up of his trade war with China has increased the odds for Fed easing given the potential for a detrimental impact on the U.S. economy. This in turn has seen the Dollar weaken against some currencies, including the Euro. The ECB is geared-up for a turn of the stimulus spigot in September, however, which along with the palpable risk of a disorderly, no-deal Brexit scenario in less than three months, should curtail EUR-USD's upside potential. Resistance comes in at 1.1250, and support at 1.1160-65.

[USD, JPY]
The Yen has traded softer, concurrently with a tentative rebound in stock markets, which was seen on Wall Street into the close yesterday, and followed up with gains across Asia-Pacific bourses. USD-JPY settled in the lower 106.00s, above the seven-month low seen yesterday at 105.49. AUD-JPY, EUR-JPY and other Yen crosses also posted moderate gains as the Japanese currency saw some of its safe haven premium unwind. Better than expected China trade numbers, driven by a rebound in exports, helped buoy investor spirits, and while the official fixing of the onshore Yuan today was at a new 10-year plus low against the dollar, at 7.0039 (versus 6.9996 yesterday), it was still a little firmer than markets had been anticipating. Another angst-mollifying development was news that Japan will allow some exports of semiconductor manufacturing material to South Korea, signalling a cooling in tensions between the two countries over trade. RBNZ Governor Orr also repeated that negative rates are possibility, which comes a day after the central bank caught widespread attention by implementing its first 50 bp easing since the immediate aftermath of 9/11. There is, additionally, conjecture in some market narratives that President Trump, mindful of 2020 elections, stock market performance, and the economy, will not likely pursue his trade war with China to the nth degree, and at some point back down while declaring victory.

[GBP, USD]
The Pound has by recent standards been trading with uncharacteristic steadiness so far this week, though the scope for a sustain rebound is limited as investors and currency overlay managers continue to demand a hefty discount in the UK currency due to the palpable no-deal Brexit risk. There is ensuing debate about if and how parliament, which in the current mix is against a no-deal scenario, could constitutionally stop a no deal exit (which, apparently, could potentially involve the Queen, depending on the circumstances). There is also speculation that Prime Minister Boris Johnson is bluffing with regard to no deal, which is how senior sources at the European Commission, cited last week by British tabloid The Sun, are reading it. On the other hand, EU negotiators stated yesterday that there was currently no basis for "meaningful discussions" and talks were back where they were three years ago, and that Boris Johnson's is intent on leaving without a deal. Downing Street rejected this assertion, calling for the EU "to change its stance." There is also a view that parliament may now effectively be powerless to stop a no-deal Brexit -- the conjecture being (which is by no means certain) that Johnson would have the power to dictate the timing of a general election even in the event his government was pulled down in a confidence vote.

[USD, CHF]
EUR-CHF has managed to find a toehold after posting to a 25-month low earlier in the week at 1.0863. The ECB's course to additional monetary stimulus in September, and risk aversion in global markets following Trump's latest escalation in his trade war with China, have been weighing on the cross. The risk of a disorderly no-deal Brexit on October 31 is also in the mix, which is a bearish factor for the cross.

[USD, CAD]
USD-CAD has settled in the upper 1.3200s after yesterday printing a seven-week high at 1.3345. Recent gains have come with oil prices having declined sharply over the last week, with front-month WTI crude prices have dropped by about 9% from week-ago levels, reflecting the air of pessimism in global markets with regard to the consequences of the ratcheting-up trade warring between the U.S. and China. Sustained oil prices swings impacts Canada's terms of trade, which in turn affects the valuation of the Canadian currency. USD-CAD support comes in at 1.3207-10.