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By XE Market Analysis December 13, 2017 3:25 am
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    XE Market Analysis: Europe - Dec 13, 2017

    USD-JPY took a 30-pip clobber on news that Democrat Doug Jones won the election for an Alabama senate seat, the first time there's been a Democratic Senate member from that state since 1992. The market narrative is that this will erode the chances for corporate-friendly legislation in the U.S., with the Republican advantage in the Senate ebbing to 51 to 49 from 52 to 48 (aside from the fact that the election result bods badly for the GOP in the mid-term elections in November 2018)) . USD-JPY's low was 113.12, with the pair subsequently settling around the 113.35 mark, which is about 15 pips lower versus yesterday's closing levels in New York. Technically, the two-we still see the pairing as remaining 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. We expect the Fed's expected rate hike tomorrow will be accompanied with sufficiently hawkish guidance to firm up the odds for a follow-up rate hike next March (Fed funds futures are discounting about 60% odds for this presently), which would also give the dollar a boost.

    [EUR, USD]
    EUR-USD recouped to the mid 1.17s, up from yesterday's low at 1.1717, driven by dollar weakness on news that a Democratic candidate won a Senate seat in Alabama for the first time since 1992. The dollar may find support from the Fed today, as, we think, a discounted 25 bp rate hike will be accompanied by sufficiently hawkish guidance to stimulate the odds for a follow-up tightening in March next year. EUR-USD has resistance at 1.1767-70, ahead of 1.1814-15.

    [USD, JPY]
    USD-JPY has plied a narrow 14 pip range so far today, between 113.43 and 113.57, settling toward the lower part of this range, which roughly marks the midway point of yesterday's range. EUR-USD and the other main dollar pairings have posted similar narrow ranges. The NZ dollar is an exception, with the currency having rallied for a second successive session as markets continue to react to yesterday's announced appointment of Adiran Orr as the new RBNZ governor. NZD-USD logged a two-week high at 0.6937. As for USD-JPY, 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]
    Sterling has settled after an early-week bout of underperformance. We take a bearish view of Cable into the Fed's expected rate hike today, as we expect a sufficiently hawkish tone in the central bank's forward guidance to give the dollar a lift. Brexit-related uncertainty also still prevails, despite last week's breakthrough on divorce terms, as we're still non-the-wiser as to what Brexit will look like -- whether a hard exit or a soft exit. Cable has support is at 1.3300-05, and resistance at 1.3351-52.

    [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 settled in the mid 1.128s after logging an 11-day peak of 1.2892 yesterday. 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 last 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 1.2813-15.

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