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By XE Market Analysis August 11, 2017 3:18 am
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    XE Market Analysis: Europe - Aug 11, 2017

    USD-JPY dove to a new eight-week low, this time at 108.90, and EUR-JPY fell to a one-month low at 128.18 as the yen continued to rally as investors flocked to safe haven assets and currencies. The Swissie has been relatively soft, weakening over the last day versus the yen, illustrating that Swiss currency has lost a lot of its shine as a safe haven currency relative to historic norms. Trump doubled down on his threats to North Korea and maintaining edgy market sentiment, with Wall Street and stock markets in Asia taking a fresh beating and the Vix volatility index hitting a nine-month high. Military action is by no means assured, though this tensions with Pyongyang seem more climactic than in the past. Markets look set to remain choppy, caught in a binary risk-on/risk-off reaction function depending on how developments evolve. USD-JPY has initial resistance at 109.44-45, while the June-14 low at 108.81 and the April low at 108.12, the latter being a nine-month low, provide downside waypoints. EUR-USD has settled around in the mid 1.17s, gaining ground amid a generally weaker dollar after U.S. data disappointments yesterday.

    [EUR, USD]
    EUR-USD has settled around in the mid 1.17s, gaining ground amid a generally weaker dollar after U.S. data disappointments yesterday. Both initial claims and PPI figures disappointed, the latter of which flags downside risk to CPI today, though markets' attention will remain on the escalating rhetoric between Trump and North Korea's Kim. We see the EUR-USD as having entered a choppy consolidation phase following a pronounced rally from early April through to early August. While the Eurozone economic picture has been continuing to improve, the ECB has made clear that it is no rush to taper, having signalled that it will review its position in the autumn. EUR-USD has resistance at 1.1785 and 1.1800, and support at 1.1638-40.

    [USD, JPY]
    USD-JPY dove to a new eight-week low, this time at 108.90, and EUR-JPY fell to a one-month low at 128.18 as the yen continued to rally as investors flocked to safe haven assets and currencies. Trump doubled down on his threats to North Korea, maintaining an edgy market sentiment, with Wall Street and stock markets in Asia taking a fresh beating and the Vix volatility index hitting a nine-month high. Military action is by no means assured, though this tensions with Pyongyang seem more climactic than in the past. Markets will set to remain choppy, caught in a binary risk-on/risk-off reaction function depending on how developments evolve. USD-JPY has initial resistance at 109.44-45, while the June-14 low at 108.81 and the April low at 108.12, the latter being a nine-month low, provide downside waypoints.

    [GBP, USD]
    Cable has been trading on either side of 1.3000 over the last two days, settling below here in the latest phase today. This price action follows a downward run over the previous week, from levels above 1.3250. EUR-GBP has seem similar choppy trading after backing from the 10-month high seen on Tuesday at 0.9087. GBP-JPY, meanwhile, logged a seven-week low today, reflecting the safe haven bid in the yen amid the standoff between North Korea and the U.S. UK production and trade data yesterday led the ONS stats office estimating a downward revision of 0.1 of a percentage point to the Q2 GDP calculation, although an above-forecast outcome in the industrial output headline still gave the pound a boost. We remain bearish of sterling. The latest Reuters poll found a strong consensus among 70 analysts for the BoE to leave monetary policy on hold until 2019, and found that the consensus view was for UK growth to continue to lag Eurozone growth, with risk of recession pegged at 20% for the coming year. Fundamental Brexit uncertainties remain. Cable has long-term trend support at 1.2938-40, and resistance at 1.3106-08.

    [USD, CHF]
    The Swiss franc has lost ground to the yen over the last day, illustrating that the Swiss currency has lost its shine as a haven currency relative to historic norms. The Swiss currency had nonetheless rallied earlier in the week when the first ratchet-up in U.S. versus North Korean tensions was heralded by Trumps "fire and fury" threat, a move that was driven by a wave of recently-established EUR-CHF long positions herding for the exits. The lack of sustained franc-selling, despite the risk backdrop remaining at the averse end of the scale, suggests that the franc hasn't made a return as a safe haven currency of choice. EUR-CHF recouped to the 1.1340 area after earlier testing 1.1300. We are looking for an eventual return to the SNB's previous floor in EUR-CHF, at 1.2000.

    [USD, CAD]
    USD-CAD clawed out a new one-month peak, this time at 1.2752. A sharp drop in oil prices has given the pair fresh buoyancy after U.S. initial claims and PPI data disappointed yesterday. We anticipate that the gains will prove to be a temporary phase, and for the big-picture bear-trend to reassert before long, basing this view on expected steady-to-firmer oil prices and more BoC tightening.

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