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Market watch - 22nd March 2019


The Greenback surged against most rivals this morning – except the broadly firmer Japanese Yen - on a “flight to quality” due to risk off trading coupled with some good news about US-China trade progress yesterday.  The Dollar got a boost on market risk aversion yesterday when it was reported that the European Union was not likely to give the UK more than a two-month extension to Brexit at this time, while President Donald Trump called on China to buy more US goods which should be more amenable than structural changes for a concrete trade deal. The Buck rose to a nine-day high versus the single currency and Loonie this morning, pulled back from an 11-day high in its pairing with Sterling from yesterday as Brexit sentiment improved a bit early today, managed a two-day high versus the Swiss Franc today, did fall to a fresh 39-day low against the broadly firmer Japanese Yen on risk-off sentiment, a modest two-day best versus the Aussie Dollar along with modest gains with the Kiwi as risk-off was balanced by the positive US-China trade news, rose to a three-day peak against the Mexican Peso after USDMXN touched a five-month low yesterday, along with a two-day high in its pairing with the Chinese Yuan also. The release of domestic Flash Manufacturing & Services PMI is scheduled for release alter this morning followed by Existing Home Sales, Final Wholesale Inventories MoM, along with the Federal Budget Balance in the afternoon as well.


The Loonie fell broadly as headline CPI MoM was 0.1% above forecast at +0.7% today but Retail Sales MoM was a dismal -0.3% compared to a +0.4% forecast, while the WTI Crude Oil price fell to a two-day low.  The Canadian Dollar is trading at its eight-day low versus the Buck this morning, dropped to a three-day low with the Euro at the moment, while falling to a fresh two-month low against the Yen today.  The Core CPI MoM release was also +0.7% which is much better than +0.3% previous while Core Retail Sales MoM only missed by 0.1% at +0.1% actual which is a bright note, but Common and Median CPI YoY was +1.8% which is below the 2.00% Bank of Canada (BoC) inflation target which is another reason for the central bank not to raise interest rates. 


The Euro fell to an eight-day low versus the Buck on decreased risk appetite, broad Dollar purchases in light of significant uncertainty, while Eurozone Flash Manufacturing PMI fell to a fresh six-year low of 47.60 which is well below the 50.00 expansion versus contraction level today which also was below the 49.5 forecast and 49.3 previous. The Euro fell to an eight-day low versus the Dollar this morning, and while it did rise to a three-day high in its pairing with the broadly weaker Loonie, the single currency also fell to a two-week low against the broadly firmer Japanese Yen today.  While Services PMI was exactly on target and Current Account for the region was better than expected at a one year high – and best since Trump initially announced tariffs last year – at 36.8B compared to only 17.3B forecast, the Flash Manufacturing PMI number reflects a potential significant downturn.


The British Pound fell broadly yesterday but recovered this morning as Brexit sentiment improved this morning.  Sterling fell broadly on the report that EU officials would only grant an extension past 22 May if there was a clear plan to pass PM May’s deal which seems a difficult prospect to more of a clarification that a plan to either pass the current deal or another reasonable angle is presented.  Most likely this means that in order to avoid a “no deal” result the UK must pass the PM’s negotiated agreement, have an election, or another referendum as previously stated in this commentary.  The market has largely ignored positive employment and inflation data for the UK this week as Brexit continues to take centre stage.


The Buck improved to its two day best versus the Aussie Dollar while only posting modest gains against the Kiwi as risk aversion was countered by improving US-China trade sentiments as Trump suggested that deal could be reached without structural changes if the Chinese purchased ore US goods.  That said, it is a dangerous proposition in the long run for the antipodeans if China starts buying more US goods that could affect demand for their own goods and raw materials. However, it was taken as good news in the immediate future.  Australian Flash Services PMI was at a disappointing 49.8 just below the key 50.00 level but improved from the 48.7 downward revision to the previous reading while Flash Manufacturing PMI was just a hair below previous at 52 yesterday evening.

The Yen rallied broadly on further market risk aversion overnight to a fresh 39-day best versus the Buck this morning, its two-week best in its pairing with the Euro today, along with a fresh two-month peak with the broadly sold Loonie today. Japanese Flash Manufacturing PMI was a disappointing 48.9 which matched the upward revision to previous but is below the key 50.00 expansion level.  Ironically, this also bolsters risk aversion.

The Swiss Franc is trading at a two-day low versus the Buck but USDCHF was less affected than EURUSD as the currency benefited from broad risk aversion reflect by its fresh 2.5-month best against the Euro along with over a one-month high against the Pound yesterday morning.

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