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By XE Market Analysis December 5, 2017 2:40 pm
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    XE Market Analysis: Asia - Dec 05, 2017

    The dollar managed modest gains for the most part in N.Y. on Tuesday, allowing the DXY to top at four-session highs of 93.43. The gains came even as U.S. trade and services ISK data disappointed. We look for the dollar to perk up into next week's FOMC meeting, where a 25 basis point rate hike is in the cards. EUR-USD fell to two-week lows of 1.1802 into the close, after topping at 1.1876 in London. USD-JPY remained above 112.50 throughout, peaking at 112.86, while USD-CAD headed up to 1.2700 on pre-BoC short covering. Cable bucked the trend remaining firm as Brexit negotiations appear to be headed toward agreement.

    [EUR, USD]
    EUR-USD printed two-week lows of 1.1802, though has not appeared to be in any rush to test the 1.1800 mark. The usual drivers remain in place. U.S. tax reform, which is looking to have a decent shot of passing in some form, should remain USD positive. On the other side of the Atlantic, still strong incoming data have supported the euro. The divergent Fed/ECB policy paths however, may hold the key, and we look for dollar strength to pick up into next week's FOMC meeting, where another 25 basis point rate hike is widely expected.

    [USD, JPY]
    USD-JPY remained buoyant through the session, topping at 112.86 before easing back to levels near 112.70. The pairing was repelled by the 50-day moving average, which stands at 112.83. A close over the level may turn the technical outlook to a more positive footing, though the 113.00 region has attracted sellers this week, with both option and exporter backed offers noted.

    [GBP, USD]
    Cable logged a four-session low of 1.3370 ahead of the services PMI, subsequently settling around 1.3420 after recovering from a brief post-PMI dip. Sterling market participants will remain on tenterhooks for an announcement that the divorce terms have been agreed, as this would greenlight the commencement of post-Brexit trading terms. Positive noises have been coming from the U.K. relative to the outcome, and cable managed to rally to 1.3460 during the N.Y. morning session.

    [USD, CHF]
    EUR-CHF has seen volatile price action over the past few sessions, having on Friday turned sharply lower, to 1.1599 after clocking a 35-month high of 1.1737, subsequently, today, lifting back above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, Friday being the latest, and market participants will be wary of supply above 1.1700. We remain bullish over the medium term. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we continue to anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.

    [USD, CAD]
    USD-CAD fell to 1.2624 lows after the data, levels last seen on October 24. The move came as Canada's trade deficit was narrower than expected, with exports beating forecasts. The data adds another positive outcome for the data-dependent BoC, and while no rate hike is expected at tomorrow's meeting, the market is now pricing in some potential for a January move. This said, USD-CAD short covering stepped in ahead of the meeting, taking the pairing to highs near 1.2700.

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