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By XE Market Analysis January 17, 2020 1:55 pm
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    XE Market Analysis: Asia - Jan 17, 2020

    The Dollar rallied some to end the week in N.Y. on Friday, taking the DXY to highs of 2020. The index topped at 97.65, levels last seen on December 26. Incoming data saw housing starts rise sharply, while industrial production was a bit lighter than consensus, and U. of Michigan sentiment missed the mark slightly. EUR-USD headed to 1.1186 low from opening highs near 1.1115, while USD-JPY was range bound between 110.22 and 110.04. USD-CAD rose to bear the top of its recent range, peaking at 1.3076. Cable meanwhile, remained heavy, bottoming under 1.3020.

    [EUR, USD]
    EUR-USD was dragged lower by Cable in London morning trade, following weak U.K. retail sales. The euro eventually touched 1.1086 lows, before finding support just over last week's 1.1085 base. The pairing remained under the 1.1100 level in light afternoon trade, with prior support reverting to resistance into the weekend. The approximate 1.1100 to 1.1200 trading range that has been in place for a week now, may be about ready to give way to selling interest, A an outperforming U.S. economy versus Europe, along with the Dollar's interest rate advantage should continue to weigh on EUR-USD.

    [USD, JPY]
    USD-JPY printed near eight-month highs of 110.29 during early Asian trade overnight. Stronger China data weighed on the Yen, with risk-taking levels remaining buoyant. A light round of pre-weekend profit taking took USD-JPY to lows of 110.04 in mid-morning U.S. trade, though Wall Street gains limited downside progress. As long as the risk backdrop remains positive, further Dollar-Yen gains can be expected. The next upside target from there being the May 23, 2019 high of 110.38.

    [GBP, USD]
    Cable printed a 1.3017 low in N.Y. trade, coming from London highs of 1.3118. The catalyst was an unexpected 0.6% m/m contraction in UK retail sales data, which followed the sub-forecast December CPI outcome, of 1.3% y/y, and underwhelming November industrial production and GDP data. The data has strengthened expectations for the BoE to cut the repo rate by 25 bp as soon as the January-30 Monetary Policy Committee meeting. We still think the BoE will refrain from cutting rates this month, and instead opt to ratchet up dovish guidance. Policymakers will still be looking to see the full impact that the lifting of Brexit and political fog has has since the election in mid December.

    [USD, CHF]
    EUR-CHF extended recent losses to a fresh 33-month low at 1.0732. This is the sixth week out of the last seven that the cross has declined, with losses accelerating this week. The reason for the divergence in the two main currency safe-haven currencies, the yen and the franc, is the U.S. Treasury having added Switzerland to its list of currency manipulators this week. This seems a bit rich given the franc is a demonstrably chronically overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index). The U.S. argues that Switzerland needs a more expansive fiscal policy. The CHF-JPY cross is now trading at 13-month highs after rallying by almost 5% from levels seen in late November

    [USD, CAD]
    USD-CAD has been range bound through the week, supported near the 1.3030 level, while unable to make upside progress beyond the 1.3080 level. The pairing peaked over 1.3076 in afternoon trade, supported by another session of weaker oil prices. WTI crude fell from near $59 to under $58.40. Further USD-CAD consolidation can be expected ahead of next week's domestic events, which include manufacturing and CPI data, along with the BoC policy meeting.

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