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By XE Market Analysis December 11, 2017 3:19 am
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    XE Market Analysis: Europe - Dec 11, 2017

    USD-JPY eked out a new four-week high of 113.69, and the New Zealand dollar rallied strongly following an announcement that a new RBNZ governor had been appointed, which was greeted as a something of a relief by Kiwi markets (the currency having been under pressure amid a cloud of policy uncertainty following elections in September). USD-JPY's high came amid a risk-on backdrop, with equity markets rallying across the Asia region today following Wall Street's lead after the S&P 500 notched up another closing record on Friday. The dollar has subsequently come under modest pressure versus the yen and other currencies. USD-JPY has ebbed back under 113.40, while EUR-USD has lifted above 1.1790, above 30 pips up on Friday's closing level. Sterling has been traded mixed, and in narrow ranges, with markets still digesting the deal on the Brexit divorcing terms, as it included quite a lot of concessions on the UK's part, while fathoming the challenges that lie ahead in negotiations for a post-Brexit trade deal.

    [EUR, USD]
    EUR-USD is up today following a run of sixth consecutive down sessions, which produced a near three-week low at 1.1730 on Friday. The pairing today lifted above 1.1790, about 30 pips up on Friday's closing level. Prospects, although not a done deal yet, of corporate-friendly tax cuts in the U.S. has underpinned the dollar, while the euro itself has been fairing better against other currencies, including the yen and Swiss franc. We recommend selling into EUR-USD gains. Friday's U.S. jobs report for November keeps the Fed on course to hike this week.

    [USD, JPY]
    USD-JPY eked out a new four-week high of 113.69 amid a risk-on backdrop, with equity markets rallying across the Asia region today following Wall Street's lead after the S&P 500 notched up another closing record on Friday. The dollar subsequently came under modest pressure versus the yen and other currencies. USD-JPY ebbed back under 113.40. The pairing remains 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]
    We advise caution with regard to sterling, and we see scope of Cable to ebb toward the 1.3200-1.3300 zone. Sterling markets are still digesting the agreement between the EU and UK on divorcing terms, while there has been a sharpening of focus on the realities of the next phase of negotiations, which will involve agreeing on new trading terms with 27 countries in the relatively short time period until Brexit-Day in March 2019. The main concern about the divorcing agreement is "regulatory alignment" accord that was needed to maintain the Irish border as a soft border, a circumstance, as U.S. trade representatives have warned Britain before, that could hinder or stop the UK from signing free trade deals with other countries. This seems to suggest that the government has, essentially, positioned the UK for a "soft" Brexit, although the prime minister May's government has remained painfully noncommittal about what sort of Brexit it wants. Cable has resistance at 1.3430-31.

    [USD, CHF]
    EUR-CHF has seen volatile price action over the last couple of weeks, having turned lower after several attempts 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 still remain bullish over the medium term, however. Assuming the Eurozone has conquered existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable (the central banks meets on policy this Thursday), 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 1.2880 on Friday. The gains reversed nearly all of the sharp losses that were seen on Dec-1 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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