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By XE Market Analysis December 8, 2017 3:45 am
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    XE Market Analysis: Europe - Dec 08, 2017

    Risk-on and news of a Brexit deal on divorce terms have provided the mains themes in the main forex markets so far today, a backdrop that has inspire yen underperformance on the one hand and sterling gains on the other. USD-JPY climbed for a third straight day, posting a 24-day high of 113.46. Progress in the corporate-friendly tax cuts underpinned Wall Street yesterday, and led to solid gains on Asian bourses today, along with the encouragement of strong Chinese export data and a solid Japanese growth numbers. We also have news that the EU and UK have reached an agreement on divorcing terms, with European Commission president, Juncker, announcing that sufficient progress has been made. Cable rallied to a four-day high of 1.3521, though has since backed to the upper 1.34s amid a broader bout of dollar buying. The pound has held up better versus the euro and yen, among other currencies.

    [EUR, USD]
    EUR-USD is down for a sixth consecutive session, logging a 16-day low at 1.1735. Progress in the corporate-friendly tax cuts has underpinned the dollar, while the euro itself has been fairing better against other currencies, including the yen and Swiss franc, although has lost ground to the pound following news of an accord being reaching between the EU and UK on divorcing terms. We recommend following the EUR-USD trend, with today's U.S. jobs report for November likely to provide further fodder for dollar bulls. We are expecting a 260k gain in headline employment versus the median forecast for a 198k rise. EUR-USD trend resistance comes in at 1.1783-85, and support at 1.1708-10.

    [USD, JPY]
    USD-JPY climbed for a third straight day, this time posting a 24-day high of 113.46. A strong rebound in Asian equity markets, along with a generally firmer dollar, underpinned the pairing. Progress in the corporate-friendly tax cuts underpinned Wall Street yesterday, leading to gains on Asian bourses. News that the EU and UK have reached an agreement on divorcing terms, with European Commission president, Juncker, announcing that sufficient progress has been made, has also been in the mix. USD-JPY is in an up phase within what has been a broadly sideways chop around, roughly, 108.0 to 115.00, for eight months now. More of the same looks likely. Resistance comes in at 113.73-75, and support comes in at 113.10 and 112.70.

    [GBP, USD]
    The pound gained on news that the EU and UK have reached an agreement on divorcing terms, with European Commission president, Juncker, announcing that sufficient progress has been made. Cable rallied to a four-day high of 1.3521, though has since backed to the upper 1.34s amid a broader bout of dollar buying. The pound has held up better versus the euro and yen, among other currencies. Markets will now digest details of the EU and UK agreement, particularly as there could be risk of a political backlash on the Irish border, though the breakthrough is significant as it means that talks on post-Brexit trading terms, and the possibility of a transition period (which hard Brexiteers are strongly against) can begin. We expect sterling to hold firm for now, before entering a consolidation phase. Cable has a key resistance zone at 1.3541-49, which encompasses former highs.

    [USD, CHF]
    EUR-CHF has seen volatile price action over the last several sessions, having on Friday turned sharply lower, to a low of 1.1599 after clocking a 35-month high of 1.1737, and subsequently testing the waters back above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We remain bullish over the medium term, however. 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 anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.

    [USD, CAD]
    USD-CAD has remained buoyant after logging a five-session peak of 1.2864 yesterday. The gains have reversed most of the sharp losses that were seen last Friday following above-forecast GDP and employment data out of Canada. The BoC's cautious guidance following its policy meeting on Wednesday, when it left its policy rate at 1.0%, as had been widely anticipated, has been weighing on the Canadian buck. In particular, the BoC noted that slack remains in the labour market, despite recent rises in overall employment. We advise following USD-CAD's nascent uptrend for now. Support is at 1.2785.

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