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18th of November 2018


XE Market Analysis: North America

The USD index (DXY) was showing a decline of over 0.6% as of the early European PM session, just ahead of the New York interbank open, as U.S. midterm election results showed Democrats wresting control of the House. The Republican's retained control of the Senate, largely as had been predicted by polls. EUR-USD rallied to a two-week high at 1.1500 on the back of the broader decline in the Dollar. USD-JPY settled to around 113.0 after seeing some chop. Cable posted a three-week high at 1.3175, while USD-CAD declined to a three-session low at 1.3072. While Congress now divided, the Trumpian agenda for lower regulation, lower taxes may come to a halt, though this hasn't stopped S&P 500 futures marching nearly 1% higher, pointing to solid opening gains on Wall Street later.

[EUR, USD]EUR-USD is up by over 0.5% at 1.1488 bid presently, earlier posting a two-week high at 1.1500. The advance reflects a broader ebb in the Dollar on news, not too unexpected, that the Democrats seized control of the House of Representatives. While the Republicans retained control of the Senate, the election outcome heralds political deadlock and uncertainty for investors. The Trumpian agenda for lower regulation, lower taxes will come to a halt, though this hasn't stopped S&P 500 futures marching nearly 1% higher, pointing to solid opening gains on Wall Street later. We still retain a bearish view of EUR-USD with signs of flagging economic growth momentum in the Eurozone, along with concerns about the Eurosceptic political movement, juxtaposing a U.S. economy in relative health (as evidenced by Friday's October employment report). EUR-USD has resistance at 1.1550-55, which encompassed the prevailing situation of the 100-day moving average.

[USD, JPY]USD-JPY settled to around 113.0 after seeing some chop as the early results came in from the U.S. midterm elections. Stock markets in Asia put in a mixed-to-lower performance, while S&P 500 futures were showing gains of nearly 1% by the late London AM session. The elections have seen Democrats wrest control of the House of Representatives while the GOP held onto the Senate, largely as predicted by polls. USD-JPY's fundamentals (yield differentials and the associated contrast between Fed and BoJ policy paths) remain supportive, although periodic episodes of risk aversion has been an intermittent offsetting bearish force. USD-JPY has support at 112.35-37.

[GBP, USD]Sterling has been trading mixed, with Cable posting a three-week high at 1.3175 on broader Dollar weakness, while the UK currency has come off the boil verses the Euro and Yen after earlier posting five-month highs against the common currency and four-week highs versus the Japanese currency. Recent gains the Pound has seen reflected a lessening in sterling's Brexit premium, though there is a risk that hopes of the EU and UK are nearing (finally) to making an agreement on divorcing terms are being overegged as the seemingly intractable Irish border backstop issue still remains unresolved. We continue to advise caution, seeing limited scope for sustained gains in the pound unless there is concrete breakthrough. Even if a deal is reached, there would remain significant uncertainty about whether it would be pass at parliamentary vote. Cable has support at 1.3041-43.

[USD, CHF]EUR-CHF has recouped back above 1.1400, recovering rom the five-week printed at 1.1355 in late October, which extended a descent from levels above 1.1500. The cross has support at 1.1405-10.

[USD, CAD]USD-CAD has continued to ply a narrow range around 1.3100, above the 12-day low seen last Friday at 1.3049 and below the two-month high see last Wednesday at 1.3170. Fresh seven-month lows in oil prices, coupled with Friday's miss in Canada's October jobs report, which contrasted with the strong U.S. jobs report for the same month, should keep USD-CAD underpinned. USD-CAD has support at 1.3049-50, and resistance at 1.3137-40.

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