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Dollar Mixed while Equities Recover to Start Eventful Week

by Marc Chandler

The US dollar is mixed against the major currencies, and while it is firmer against the euro and yen, it is within last week's ranges. The success of Macron's new party in France, and the majority is secured, was well anticipated by investors and is having little effect on today's activity in the capital markets.

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The start of Brexit talks also is spurring little response in the market. Sterling is steady to a little firmer and holding below last week's high just shy of $1.2820, though a more important barrier is seen near $1.2850, where the 20-day moving average and a retracement objective converge. Steps were taken by the government, like going forward with Queen's Speech, even though an agreement with the DUP is not secure, and indicated a two-year parliamentary session suggest that the election has not changed the main thrust of the Brexit strategy. Talk of a more business approach flies in the face of the continued commitment to leave the single market. Meanwhile, some polls over the weekend suggest that many people's attitude toward Brexit has changed.

The market has also shrugged off weekend developments in Italy, where it appears that the two troubled regional Italian banks will not get a precautionary line of credit that seemed like the most likely scenario late last week. It is not clear exactly what is going to happen, but the fallback strategy under the Bank Recovery and Resolution Directive (BRRD) may be to establish a good and bad bank, and this could, in theory, avoid "bailing in" depositors and subordinated creditors, as equity investors have already been wiped out. Italian bank shares fell in the second half of last week but are steady to a little higher now. The sovereign five-year CDS is also little changed. Italy's 10-year bond yield has dropped four basis points, which is among the biggest moves today, while the two-year yield is little changed.

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About the author

Marc Chandler has been covering the global capital markets in one fashion or another for more than 25 years, working at economic consulting firms and global investment banks.

Officially, Marc Chandler is Global Head of Currency Strategy, Brown Brothers Harriman since October 2005. Previously he was the Chief Currency Strategist for HSBC Bank USA and Mellon Bank.

Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.

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