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Market watch - 19th September 2019

The Dollar continues trading mixed in tight ranges this morning in the wake of the FOMC rate cut yesterday of 0.25%, leaving Fed Funds at 1.75-2.00% from 2.00-2.25% yesterday, accompanied by a statement which suggested no more likely rate cuts this year.  Moreover, the Federal Reserve Banka actually raised its domestic GDP forecast to +2.2% yesterday and stressed the labor market is very strong. The shortfall in short-term borrowing markets was blamed on idiosyncratic factors – corporate taxes due Monday, the Japanese Bank Holiday, along with a Treasury settlement date – and this seems have been a temporary issue, but traders are carefully watching this as it could force QE measures down the road if the repo market does not really formalize.  Overall, while the FOMC cut rates, the statement was less hawkish than expected yesterday.  President Trump “tweeted” that Fed Chair Powell had no “guts” to which Fed Chair Powell said the Fed would continue to make policy without regard to political consideration. Trump also decided to increase sanctions on Iran in response to the attach on Saudi Arabia rather than direct military action of the moment. While the Buck dropped modestly versus the Euro in tight ranges, fell to its  a three-day low against the safe-haven Japanese Yen and  Swiss Franc it also hit a two-week high with the Loonie, Aussie Dollar, and Kiwi as the risk-weighted commodity group dipped on some moderate risk-off trading factors.  Cable remained close to its nearly two-month high from yesterday as the Brexit outlook has improved overall. USDCNY traded close to its one-week high and USDMXN stayed close to its 1.5-month low from yesterday morning.  Current Account data was essentially exactly as expected today at -128B compared to its -127B target.

The Canadian Dollar fell to its two-week low versus the Greenback yesterday, touched a six-day low against the Euro today,  while it also hit its nine-day trough with the Japanese Yen as WTI prices have stayed lower after the spike this weekend on the Saudi Arabia attack, overall risk tolerance was softer, and despite relatively good CPI MoM data yesterday.  ADP Non-Farm Employment was better than expected at +49.3K but there was a significant downward revision to 30.2K from 73.7K for the reading last month.  Key Retail Sales MoM data for Canada is scheduled for release tomorrow morning.

The Euro improved a bit versus the Buck today in very tight ranges, rose to its six-day best with the Canadian Dollar today, while it stayed close to its three-month low with Sterling yesterday.  There was some inflow into Euro on the Fed meeting but nothing spectacular. Current Account was nearly as expected at 20.5B compared to its 20.3B consensus forecast and improved from +18.4B for the reading last month.  German PPI MoM follows tomorrow along with the release of EU Consumer Confidence data also.

The British Pound continues to stay close to firm levels against most rivals amid the conflict between the new PM Boris Johnson led government and Parliament.  The Retail Sales MoM data for the UK was released exactly on target at -0/2% but with a +0.2% upward revision to last month to +0.4% from +0.2% while Bank of England (BoE) policymakers vote unanimously to leave both their Official Bank Rate and Asset Purchase Facility unchanged as Brexit uncertainty makes it difficult for any policy tightening for the moment.  The BoE Quarterly Bulletin is scheduled for tomorrow.  Traders will continue to be carefully watching Brexit developments unfold.

The Buck dropped modestly versus the safe-haven yen and Swiss Franc as risk appetite was softer today while it rallied to its two-week peak with the Aussie Dollar and Kiwi on risk-off factors. The Buck improves to its one-week high versus the Yuan as well. The Swiss National; Bank (SNB) left its key Policy Rate at -0.75% this morning whilst offering measures to alleviate bank profitability as they committed to exempt more of their reserves from the negative rates.  There is growing suspicion this measure is to prepare markets for another cut in the foreseeable term.  Australian Employment Change bested expectation at 34.7K compared to its +15.2Kconsensus forecast overnight.   The Bank of Japan (BoJ) unsurprisingly left its key BoJ Policy Rate at -0.10% yesterday night but also indicated more stimulus could be on the horizon for next month as well.

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