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By XE Market Analysis August 17, 2018 3:04 am
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    XE Market Analysis: Europe - Aug 17, 2018

    The Dollar majors have been trading within yesterday's ranges, lacking fresh leads and with market participants keeping a weather eye on how developments from this era of tariffs and sanctions will evolve. EUR-USD has been making time in the upper 1.1300s while USD-JPY has been lodged in the upper 110.0s. Stock markets have remained stable, and the PBoC lifted the Yuan's at the fixing today, which prompted a bid, albeit modest, for the Australian Dollar. AUD-USD lifted about 25 pips in posting a 0.7280 high before turning lower, leaving yesterday's four-day peak at 0.7286 unchallenged. The USD-CNY fix today was 6.8894, down from yesterday's 6.8946.

    [EUR, USD]
    EUR-USD has been making time in the upper 1.1300s. Good selling interest was seen in the 1.1395-1.1409 range yesterday, which put a cap on the pairing, and may continue to today as markets cast a wary eye on next week's "low level" trade talks between the U.S. and China given past failures to establish meaningful dialogue. This wariness should maintain an underlying bid for the U.S. currency. Overall, we still remain bearish of EUR-USD. The relative strength of the U.S. economy should be showcased by incoming data, and show price pressures to be picking up, which in turn should girder the Fed's course to further tightening. Despite the recent turmoil in global markets we still expect two more 25 bp hikes in the Fed funds rate this year, one in September and another in December. EUR-USD has resistance at 1.1425.

    [USD, JPY]
    USD-JPY has continued to trade with little direction, lodged in the upper 110.0s. Ditto for the Yen crosses today, which are trading at about the same levels they were this time yesterday. Stock markets have remained stable, and the PBoC lifted the Yuan's at the fixing today, which prompted a bid, albeit modest, for the Australian Dollar. There is a feeling of wariness behind the calm, with the recent strength of the Dollar having exposed vulnerabilities in a number of emerging world economies that have a high proportion of borrowing in the U.S. currency (Turkey, South Africa, Argentina, among others). Markets are also looking to next week's new round of "low level" talks between the U.S. and China on trade with some scepticism given recent failed attempts at dialogue. USD-JPY has support at 110.28-30.

    [GBP, USD]
    Cable has been skirting above 1.2700 over the last day, seeing several brief dips under before recouping back above the figure, aided by a softer underlying tone in the Dollar. The Pound failed to see a sustained lift on yesterday's bigger than expected retail sales rebound from June, with July sales expanding 0.7% m/m after contracting by 0.5% in the month prior (the median forecast had been for a more moderate increase of 0.2% m/m). In the bigger picture, Sterling is registering as the weakest of the main currencies over the last month, with a loss of some 5% against the Yen, which is strongest currency over this period (reflecting safe-haven premium currently built into the Japanese currency's value). Political and associated Brexit-related risks are keeping the pound in a lower trading band than it otherwise would be. Cable would need to close out tomorrow below 1.2769-70 to mark this week up as the sixth consecutive week of declines. Trend resistance comes in at 1.2826-28. Momentum indicators are flashing "oversold", with the 14-day RSI showing a reading of 25.1 presently, well below the 30.0 threshold, illustrating that the run of declines have become anomalous relative to price history, and thereby, for advocates of technical analysis, might be a signal that the market is ripe for a rebound.

    [USD, CHF]
    EUR-CHF edged out a two-session high of 1.1348, extending the rebound form the one-year that was seen at 1.1243 on Wednesday. Ankara's success in halting the rout of the lira and news that the U.S. and China are heading back to the negotiating table have given the franc opportunity to come off the boil. SNB Vice Chairman Zurbruegg said earlier in the week that the central bank's ultra-accommodative monetary policy (negative interest rates coupled with tactical forex interventions) was justified in light of the franc's surge in the wake of the Turkish economic turmoil and flash of contagion in other emerging nations with high levels of dollar borrowings. EUR-CHF has resistance at 1.1368-70, which encompasses the May low and which had been the base of a broadly sideways range that had been in play since August 2017.

    [USD, CAD]
    USD-CAD has remained elevated after yesterday matching Wednesday's three-week high at 1.3175. News that President Trump said that he was in no hurry to do a NAFTA deal weighed on the Canadian Dollar, which has a built-in discount related to the uncertainty been generated by this issue. The recent sharp declines in oil prices have been another negative for the Loonie, while the relatively strong fundamentals of the U.S. economy (we expect two more Fed hikes this year versus on only one more for the BoC) is an added reason to take a bullish view of USD-CAD. The pair has support at 1.3098-1.3100 and resistance at 1.3191-92.

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