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Market watch - 22nd August 2019


The Dollar is trading firmer against most of its rivals this morning on a flight to quality as domestic stock index futures are pointing higher while the 10-year Treasury yield touched its nine-day high as well.  The Greenback rose to its three-week best with Euro and Swiss Franc on the dovish ECB meeting Minutes, but fell to its 25-day trough against the Pound as German Chancellor Angela Merkel seems to be working steps toward a compromise with UK Prime Minister Boris Johnson in attempt to avoid a no-deal Brexit result. The generally firmer Buck rallied up from its two-day low versus the Loonie overnight but USDCAD was in tight ranges on strong Canadian CPI MoM from yesterday despite a dip in WTI Crude prices this morning.  The Dollar rose to its two-day high with the Aussie Dollar on safety inflows to USD while it hit a fresh 43-month high with the Kiwi and new 11.5-year peak with the Chinese Yuan on softer risk tolerance coupled with heightened US-China trade war concerns.

The FOMC Meeting Minutes from yesterday afternoon were in line with the comments made by Fed Chair Powell during their last meeting.  USDJPY and USDMXN traded close to the top of their recent ranges as well on Greenback strength. Domestic Flash Manufacturing PMI was released at 49.9 versus 50.5 consensus forecast, and just a hair below the 50.0 expansion versus contraction level, while Flash Services PMI also came in worse than expected at 50.9 compared to its 52.9 target for this morning.  Market participants will be watching Fed Chair Powell’s speech from the Jackson Hole Symposium tomorrow morning.


The Loonie is trading a bit softer against the generally firmer Greenback, but is the only currency other than Sterling bucking the strong USD trend overnight given strong domestic CPI MoM data yesterday, better than expected Wholesale Sales MoM today, with the key Retail Sales MoM number on tap for tomorrow morning. The Canadian Dollar managed a three-day high with both the Euro and Yen in the overnight session today. Wholesale Sales MoM was released at +0.6% compared to its -0.2% forecast and -1.9% reading for last month. WTI crude slipped to a two-day low overnight after touching an eight-day peak yesterday morning but recovered from its lows fairly swiftly this morning. The Loonie continues to be supported by the neutral Bank of Canada (BoC) policy which is relatively hawkish to dovish major central banks elsewhere ahead of the BoC 4 September policy meeting announcement.


The Euro fell to its three-week low versus the Greenback in tight ranges overnight, dropped to tis two-day low with the Loonie today, while it fell to its 25-day low versus the broadly firmer Sterling this morning.  Eurozone Flash Services PMI was better than expected at 53.4 compared to its 53.0 forecast this morning with Flash Manufacturing PMI came in at 47.0 versus 46.3 consensus but well below the key 50.0 expansion versus contraction level.  The ECB Monetary Policy Meeting Accounts were dovish as expected only firming expectations of potential near-term stimulus and monetary policy easing beginning next month.


The British Pound is trading broadly firmer as reports did reflect that German Chancellor Angela Merkel is prepared to compromise with UK Prime minister Boris Johnson on the highly contested Irish Backstop issue at the moment. Sterling firmed to its 25-day best with the Dollar, CAD, and Euro this morning on the news.  Johnson himself stated that that Merkel had given him 30 days to come up with alternatives to the backstop and said there was scope for a deal to be done. Comments from Merkel this week have hinted that a compromise might be possible.  However, French President Emmanuel Macron told PM Johnson today that any new Brexit deal would be very similar with the existing agreement adding the Irish Backstop is really “indispensable” during their meeting this morning. CBI Realized Sales was released at its December 2008 low of -49 this morning versus -13 consensus forecast and -16 previous.  Markets seemed to shrug this off in favor of the positive Brexit news.


The Japanese Yen is trading generally softer in tight ranges as both US equities and government debit yields are higher this morning, and USDCHF rose to its three-week high on Dollar buying. the Greenback hit a two-day high versus the Aussie Dollar, its fresh 43-month high versus the New Zealand Dollar overnight, along with its 11.5-month high with the Chinese Yuan on US-China trade concerns. Australian Flash Services PMI dropped to 49.2 from 52.3 for the reading last month while Aussie Flash Manufacturing PMI was released largely unchanged at 51.3 versus 51.6 previous.  The Japanese Flash Manufacturing PMI release was steadily just below the key 50.0 expansion level essentially on target at the 49.5 actual today versus 49.8 forecast.  

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