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By XE Market Analysis August 15, 2017 2:55 pm
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    XE Market Analysis: Asia - Aug 15, 2017

    The dollar rallied broadly after the better mix of U.S. data, where retail sales, the Empire State index, and home builder sentiment all beat expectations. Wall Street opened higher, though later faded to mildly red territory, as underlying geopolitical sentiment remained cautious. EUR-USD fell to 1.1688 lows after the data, before later rallying back to 1.1743 highs after the London close. USD-JPY printed seven-session highs of 110.84, though later eased back to 110.40. USD-CAD bounced on the better U.S. data, and oil price softness, touching one-month highs of 1.2778/ Cable meanwhile, remained heavy after the U.K. CPI miss, falling to a one-month low of 1.2847.

    [EUR, USD]
    EUR-USD moved up from post-data lows of 1.1687, recovering to 1.1733 highs, just shy of the 20-day moving average at 1.1741. A N.Y. close under the level will be taken as a bearish signal for the pairing. Bigger picture, we continue to see the euro sold into rallied, as improving U.S. data will keep another Fed rate hike at least partially in the picture. In addition, the beginning of unwinding of the Fed's balance sheet, which could begin as soon as September, and the EBC's non-commitment to a tapering schedule, may well combine to keep pressure on EUR-USD.

    [USD, JPY]
    USD-JPY pulled back from seven-session highs of 110.84, bottoming at 110.40, and dipping under its 20-day moving average at 110.65. Wall Street pared opening gains, which brought in a modest round of USD-JPY position squaring. The ratcheting down of N. Korean geopolitical concerns should be supportive of the risk-sensitive pairing going forward, though given the fluidity of the situation, caution is advised.

    [GBP, USD]
    Sterling was weaker against both the dollar and euro in N.Y. on Tuesday. Cable logged a one-month low at 1.2846 and EUR-GBP a 10-month peak at 0.9133. Sub-forecast inflation figures out of the UK were the latest selling cue, with the data firming up the consensus view for the BoE to maintain unchanged monetary policy through to 2019. With the government favouring a hard Brexit, we expect further downside in sterling. Cable's 12-July low at 1.2811 provides the next downside target. Resistance is at 1.2875-76.

    [USD, CHF]
    USD-CHF fell back from six-session highs of 1.1478 in N.Y. trade, basing at 1.1393. Profit taking was cited, though bigger picture, the market seems to have a new-found confidence to short the franc, which has hinged on improving sentiment about Eurozone's economy and political viability. Up until recently, even the enticement of a -0.75% deposit rate had failed to sustain franc shorting, which would be welcome by the SNB, which has long-since battled what it characterizes as a "significantly" overvalued currency. We are looking for EUR-CHF to "close the gap" by returning to the 1.2000 level, which had been the SNB's floor until abandoning it in January 2015.

    [USD, CAD]
    USD-CAD popped to 1.2778 highs, a one-month top, following the better U.S. data, and WTI crude's move to three-week lows of $47.09. Oil prices fell as much as 6% since last week's high over $50.20, seeing USD-CAD rise over 100 points during that time frame. If further oil price declines persist, USD-CAD may have room to run to its 50-day moving average, which stands at 1.2890. From there though, sellers may well return on expectations for further BoC tightening.

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