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Market watch - 17th January 2019

The Greenback is mixed in tight ranges this morning as it is largely sideways versus the Euro today, ticked a little higher in its pairing with the Loonie on risk-off trading, slipped against the broadly firmer Sterling after the Prime Minister survived a vote of “no-confidence today, rose to a three-week high against the broadly softer Swiss Franc, was largely unchanged versus the Yen on the mixed indicators of risk aversion and an uptick in Treasury yields this week,  rose to a once-week high in its pairing with the Aussie Dollar along with an eight-day peak with the Kiwi overnight, dropped to a three-month low in its pairing with the Mexican Peso before risk aversion bid USDMXN a bit higher. The standoff between the White House and House Democrats continues, with the Trump Administration ordering thousands of government workers back to work, but without pay, amid the longest government shutdown in domestic history.  Japanese Finance Minister Taro Aso urged the G20 to renew their commitment to global trade and against protectionism overnight, which does reflect – importantly - this will be a key theme of the meeting for this week.  The Federal Reserve Beige Book from yesterday reflected a generally positive outlook for the economy, indicating tightening labor markets, rising wages overall, along with “modest-to moderate” price increases as well.  The release of US Import Prices was better than anticipated at -1.0% compared to -1.3% forecast consensus which also was much better than -1.9% downward revision for last month.  The Philly Fed Manufacturing Index was better than anticipated at +17 today compared to +9.7 forecast and +9.4 previous.
The Canadian Dollar slipped to a nine-day low versus the Greenback, was softer against the Euro, while fell to a 15-day trough in its pairing with the Pound, as the commodity currencies were a bit lower on broad risk aversion reflected by lower global equities and a modest downtick in oil prices. Interestingly, the WTI Crude Oil price – while still firmly above $50 per barrel -  fell to a two-day low despite US Crude Oil Inventories released yesterday at –2.7M compared to the -1.4M forecast but data reflected that US oil drillers were pumping some 11.9M Barrels a day last week causing soaring gasoline stockpiles.  Financial market question whether OPEC will be able to offset the surge in US production.  The Canadian ADP Employment Change was released at -13K versus the previous +39.1K which did not help, but this is quite a new indicator for Canada so it does have limited effect overall.

The Euro is trading largely sideways versus the Buck, a bit stronger against the Loonie, while falling to a 51-day low in its pairing with the broadly stronger Pound this morning as EU Final CPI YoY was released at 1.6% which matched the Flash Estimate about two-weeks ago but was 0.1% worse than anticipated. The headline CPI data reflects relatively muted inflation in the Eurozone with an unsurprising immediate affect from the end of asset purchases by the ECB last month.  The Core CPI YoY was on target at +1.0% and has been stable at this level for quite some time. Current Account data is due for release tomorrow.

The British Pound rose broadly after Prime Minister Theresa May survived a vote of ‘no-confidence’ this morning by the slim margin of 325 to 306 while Labour Leader Jeremy Corbyn argues that it is a “zombie” administration which has lost the right to govern. Interestingly, the PM won by a total of 19 votes and 10 were from the DUP reflecting the importance of their support and highlighting the complicated Irish border issue.  Bank of England (BoE) Governor Mark Carney warned of Brexit volatility yesterday but UK CPI YoY was on target at 2.1% with many analysts seeing the defeat of the government bill two ago as opening positive options for the UK including the extension of Article 50 or a softer Brexit deal rather than a disorderly “no deal” scenario.  That said, the Chief EU Brexit negotiator Michel Barnier stated today that he believes the risk of a “no-deal” UK departure is much higher in the wake of the UK vote on Tuesday and that the EU has to step up its emergency planning.

The Buck rose to a fresh one week high versus the Aussie and 8-day peak against the Kiwi as risk aversion coupled with a drop in oil, gold, and copper pressured the antipodeans in the overnight session.  While protectionism is clearly going to be a key subject in the G20 Meeting, reflected by the Speech from Japanese Finance Minister Aso yesterday, there is no significant expectation of any resolution.  Markets are eagerly watching any news about US-China trade progress.

The Yen was sideways in tight ranges with the Buck after USDJPY rose yesterday as risk aversion supported the Japanese currency but an uptick in Treasury yields this week helped the Dollar. The Yen ticked up against the Loonie and Euro as well.  Bank of Japan Governor Haruhiko Kuroda spoke yesterday on the fact that Japan faces new economic risks from their aging/shrinking population. 

The Swiss Franc dropped to a three-week low versus the Greenback on the softer Euro despite risk-off trading as protectionism continues to be a grave concern for the export driven Swiss economy. 

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