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By XE Market Analysis December 18, 2017 3:02 am
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    XE Market Analysis: Europe - Dec 18, 2017

    The dollar has traded mixed in mostly narrow ranges so far to day, with liquidity much reduced this week as holidays loom and participants wind down ahead of the new year. USD-JPY saw some chop, dipping to a 112.44 low in early dealings before recouping to a peak of 112.83. A risk-on theme in Asia, which followed a positive session on Wall Street on Friday, helped the yen reverse out of early gains, as did the Tankan's survey on business inflation expectations, which showed a continued prognosis of benign price pressures. The survey offset, at least from a BoJ policy-implications perspective, a forecast-beating 16.2% y/y surge in Japanese exports, which is the latest sign that the Japanese economy is getting back on trade under the "Abenomics" policy regime coupled with robust global growth. Elsewhere, EUR-USD lifted back above 1.1750 but remains about a big figure below levels that were prevailing ahead of the ECB meeting last week. The Australian, New Zealand and Canadian dollars liked the risk-on sentiment, gaining 0.3% and 0.4%, respectively, versus their U.S. cousin. Oil prices gained for a third successive session.

    [EUR, USD]
    EUR-USD lifted back above 1.1750 but remains about a big figure below levels that were prevailing ahead of the ECB meeting last Thursday, which produced less hawkish than expected guidance and offset the Fed's own less hawkish than anticipated take that was seen the day before. EUR-USD is now lacking directional impulse, while markets are winding down into the Christmas and New Year holiday period. We see EUR-USD has remaining in a trading range roughly centred on 1.1700 and 1.1900.

    [USD, JPY]
    USD-JPY saw some chop, dipping to a 112.44 low in early dealings before recouping to a peak of 112.83. A risk-on theme in Asia, which followed a positive session on Wall Street on Friday, helped the yen reverse out of early gains, as did the Tankan's survey on business inflation expectations, which showed a continued prognosis of benign price pressures. The survey offset, at least from a BoJ policy-implications perspective, a forecast-beating 16.2% y/y surge in Japanese exports, which is the latest sign that the Japanese economy is getting back on trade under the "Abenomics" policy regime coupled with robust global growth. Technically, a broadly sideways chop centred, roughly, between 108.0 to 115.00, has been persisting in USD-JPY for eight months now. More of the same looks likely. Resistance comes in at 113.10, which was a former support.

    [GBP, USD]
    Sterling has settled today after taking a sharp turn lower on Friday, which put Cable at six-day lows and EUR-GBP at two-week highs. The losses came despite EU leaders opening the way for negotiations on a post-Brexit trade deal to begin, which is looking like a tall order given the time frame at hand, with formal talks not set to begin until March next, just one year before Brexit Day. The solution would be for a multi-year transitory phase, something that both the British government and the EU are talking about (although hardline Brexiters would rather leave without bothering to negotiate, instead making a clean break and adopting WTO trading terms). A big cloud for investors and business leaders is the highly convoluted political setting in the UK, which is causing uncertainty about what Brexit will actually look like. The main opposition party, Labour, also appear to be evolving to a position that may favour remaining in the EU. Cable has support is at 1.3300-02.

    [USD, CHF]
    EUR-CHF has seen choppy 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 bank reaffirmed this commitment at its quarterly policy review last week), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1620.

    [USD, CAD]
    USD-CAD has settled in the mid 1.28s after rallying from sub-1.2800 levels to a peak of 1.2895 on Friday. Expectations that Republicans will push through the corporate-friendly tax overhaul has given the U.S. dollar a prop, while at the same time there are some concerns about the NAFTA re-negotiation has given the Canadian buck an offered tone. This backdrop offset remarks from BoC governor Poloz last Thursday, when he inspired a spike in Canadian yields by saying that policymakers are increasingly confidence that less stimulus will be needed. USD-CAD has support 1.2800-05, and resistance at 1.2881-84.

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