FX Action | 05 November 2019

• A no-deal Brexit avoided theme has given both the Euro and Pound a lift lately, though the possibility for a no-deal further down the track remains on the cards, while the protracted political uncertainty in the UK is having a deleterious economic on both sides of the Channel. The ECB is also taking a dovish tilt with Christine Lagarde having taken up the reins. On the dollar side of the balance, with regard to EURUSD, markets are anticipating US non-manufacturing survey data for October, due later today, to rebound from the 3-year low seen in September. This would follow the strong US October jobs report (despite the General Motors strike) and the backdrop of the Fed’s three precautionary rate cuts.
• EURUSD printed a 6-day low at 1.1112 in what is now the pair’s fourth day trading on a 1.11 handle. The pair has been losing upside momentum after rallying out of sub-1.0900 levels in early October. The Euro has seen signs of weakness against other currencies, although EURJPY has been buoyed by Yen trade yesterday.Against a sputtering Eurozone economy and a dovish ECB, the upside potential of EURUSD should be kept in check. In the long-term pair still classified as being amid a down trend that’s been unfolding since early 2018, from levels around 1.2500. The trend has coincided with the 10-year Bund yield dropping from levels over 0.70% to the prevailing -0.325 % yield (a -0.739% low was seen in early September).

JPY: Looking northwards despite risk-on mode

• The Yen continued on a softening tack into the EUropean session amid a backdrop of continued risk-on positioning in global markets, which have seen sovereign bonds come under pressure and stock markets rally. Maintaining investor spirits were the PBoC cutting its 1-year medium-term lending facility (MLF) rate by 5 bps for the first time since early 2016, and an FT report that the Trump administration was considering removing some tariffs on Chinese goods, which is something that Reuters sources have been saying Beijing has been pushing for.
• USDJPY rose to a 5-day high at 108.88. EURJPY and AUDJPY also made respective 5-day peaks, at 121.12 and 75.18, and other Yen crosses gained. AUDJPY lifted by over 0.5%, drawing back in on the 3-month high seen last week at 75.29. Positive sentiment for USDJPY holds in the medium picture, as the asset holds above 20- and 50-Day SMA, with momentum indicators positively configured. Hence the intraday decline remains a temporary correction on the 3-day rally.

GBP: Struggling to hold above 1.2900

• A no-deal Brexit avoided theme has given Pound a lift lately, though the possibility for a no-deal further down the track remains on the cards, while the protracted political uncertainty in the UK is having a deleterious economic on both sides of the Channel.
• The Pound stuck at 1.2900 (mid 3-week range) after making up the fourth week out of the last five where a higher high has been set. From month-ago levels, the Pound is the strongest performer out of the main currencies, up 5% against the Dollar and by over 6% versus the Euro, reflecting an unwinding in the pound’s Brexit discount, with a Halloween no-deal Brexit scenario having been avoided.

• USDCAD has remained heavy, today matching the 6-day low that was seen yesterday at 1.3130, with the Canadian dollar being floated by a backdrop of coursing risk appetite in global markets, similar to the other Dollar bloc currencies, which has offset the jump in US yields following the strong US jobs data on Friday.
• Taking a step back, USDCAD is near to the midpoint of the range that’s been seen over the last 4-plus years.