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By XE Market Analysis August 22, 2017 3:39 am
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    XE Market Analysis: Europe - Aug 22, 2017

    The dollar has traded softer versus many currencies during the pre-London session in Asia, including against the euro, and commodity and emerging world currencies, though the greenback gained versus the yen. A revival in risk appetite brought some pressure on the Japanese currency, while there remains a degree of position jostling ahead of the Jackson Hole symposium (which starts on Thursday). USD-JPY lifted back to the low 109.0s after dipping yesterday to a low of 108.63, which by our data is 3 pips above last Friday's four-month low. EUR-USD, meanwhile, ebbed back to the 1.1800 level after yesterday logging a one-week high at 1.1828, and USD-CAD carved out an 18-day low at 1.2547 and AUD-USD a three-session peak, at 0.7950. Cable has entered its fifth consecutive session of orbiting 1.2900.

    [EUR, USD]
    EUR-USD ebbed back to the 1.1800 level after yesterday logging a one-week high at 1.1828. The upcoming meeting of central bankers at the annual Jackson Hole economic policy symposium (starting this Thursday), is in focus with major central banks under pressure to unwind ultra-accommodative monetary policy settings. This was the venue that ECB President Draghi laid the groundwork for quantitative easing back in 2014, and there is a market narrative saying that this could be the stage where he might detail a tapering of the QE program. Although we think Draghi will keep his powder dry (given geopolitical risks and tepid inflation), this should keep EUR-USD bid on dips for now, especially with recent data having seen prospects for another Fed rate hike by year end all but disappear. EUR-USD has support at 1.1750-53.

    [USD, JPY]
    USD-JPY lifted back to the low 109.0s after dipping yesterday to a low of 108.63, which by our data is 3 pips above last Friday's four-month low. The lift today came as risk aversion improved somewhat in Asia after an indifferent finish on Wall Street. We still think the bias of the pairing will be to the downside given lingering anxieties about North Korea and the U.S. political situation. This year's Jackson Hole symposium of central bankers, which starts on Thursday and carries on to the weekend, will be a big focus given the path to remove ultra accommodative monetary policy. USD-JPY has support at 108.60-63 (which encompasses the recent lows), and resistance is at 109.60.

    [GBP, USD]
    Cable has entered its fifth consecutive session of orbiting 1.2900. We continue to take a bearish view. Slovenian PM Miro Cerar yesterday warned that the Brexit negotiating process "will definitely take more time than we expected," and slammed the British government's paper on potential future customs arrangements as being "not realistic." Aside from Brexit, there remains a degree of political uncertainty following the June elections that left PM May's Conservative Party governing from a greatly weakened position (relying on support form a Northern Irish party), while inflation-adjusted average household incomes are in decline. The UK calendar this week is highlighted by second estimate Q2 GDP data (up Thursday), which is likely to confirm growth at 0.3% q/q, half the Eurozone growth figure for the same quarter.

    [USD, CHF]
    EUR-CHF lifted to a four-session high at 1.1384, extending the recovery from last Friday's three-week low at 1.1259, which was seen after the ECB minutes to the August policy meeting revealed policymaker concern about the pace of recent euro gains. The recovery in the cross reflects a broader rise in the euro into the Jackson Hole gathering (starting Thursday), where ECB's Draghi might lay out the ground plans for a tapering in the QE program. EUR-CHF's price action of late is consistent with the cross having made a return as a "normally" trading pairing over the last month. Assuming the Eurozone economic revival remains on track, which would help quell policymaker angst about euro gains, and assuming the ECB commits to QE policy tapering, we expect the EUR-CHF to recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD ebbed to an 18-day low at 1.2547 today, despite a 2.5%-odd dive in oil prices. The move reflects a weaker tone in the dollar and recoupment of risk appetite, while markets are also factoring relative outperformance of the Canadian economy, which we expect to come in at 3.7% q/q (saar). We continue to favour the downside in USD-CAD, anticipating the BoC to make a second 25 basis point rate hike in October, which would take the policy rate to 1.00%. We see two more 25 basis point rate increases next year, a slow-go approach to tightening but one that should keep return the Canadian dollar to fairer values, with the drag from historic low oil prices in recent years having now passed. .

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