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By XE Market Analysis February 13, 2018 2:47 am
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    XE Market Analysis: Europe - Feb 13, 2018

    The dollar traded mostly lower as the global equity rebound extended in Asia after Wall Street yesterday completed its biggest two-day rebound in just over two years. The U.S. currency has been correlating inversely with global stock market direction of late on the causation that risk-on phases have seen investors divest of dollars and dollar assets in favour of higher yielding opportunities, and vice versa. The narrow trade-weighted USD index has declined 0.3% to 89.94, earlier clocking a four-session low at 89.88. EUR-USD posted a four-session high at 1.2325. Cable and USD-CAD have remained within their respective ranges from yesterday, while USD-JPY and yen crosses have traded lower in Tokyo, where markets have reopened after a long weekend. Japan's Nikkei 225 has bucked the global equity rebound, closing with a 0.8% loss, while U.S. equity index futures are also lower. AUD-USD saw a four-day high at 0.7874, aided by data showing Australian January business conditions rising to 19 from 13, with overall confidence lifting to a reading of 12, up from 11.

    [EUR, USD]
    EUR-USD posted a four-session high at 1.2325 as the dollar came under pressure as the global equity rebound extended in Asia after Wall Street yesterday completed its biggest two-day rebound in just over two years. We remain bearish of EUR-USD, basing this view on the rekindled commitment of the Fed to a tightening policy course (which is looking to be on track to hike the funds rate four times this year, starting at the March FOMC), juxtaposed to the ECB's evident disquiet about euro strength (expect more complaints into the G20 summit). Initial EUR-USD resistance is at 1.2335-38.

    [USD, JPY]
    USD-JPY and yen crosses have traded lower in Tokyo, where markets have reopened after a long weekend. Japan's Nikkei 225 has bucked the global equity rebound, closing with a 0.8% loss, while U.S. equity index futures are also lower following Wall Street's best two-day rally in just over two years. This backdrop has seemed to keep the yen bid. USD-JPY is presently just off its lows, showing a 0.5% decline, at 108.12 bid. The low was at 108.06, which is 2 pips shy of last Friday's five-month low. EUR-JPY logged a low at 133.16, down 0.2% on the day and so far leaving yesterday's nadir at 132.90 untroubled. AUD-JPY has seen a similar price action. Good demand is reportedly in wait into 108.00 in USD-JPY. News out of Japan today include remarks from Japan Economy Minister Motegi, who argued that Abe's stance on monetary policy (i.e. ultra dovish) must be maintained. Japan January PPI came in at 0.3% m/m, as expected, after 2.7% y/y in the month prior.

    [GBP, USD]
    The pound has been trading neutrally so far this week, after underperforming last week. Her Majesty's currency is showing an average decline of nearly 1% versus the G3 currencies on a week-on-week basis, despite the BoE's hawked-up guidance of last Thursday, with a consequent rally in the pound curtailed and reversed by a re-emergence of Brexit concerns. EU's chief Brexit negotiator, Barnier, said on Friday that a transition deal is "not a given." That followed government-sponsored research highlighting that leaving the EU would cost Britain's economy. Such concerns put the BoE's own emphasized Brexit caveats into light -- that its economic projections assume that households and companies base their decisions on the expectation of a smooth Brexit adjustment, which remains a "significant" source of uncertainty. BoE Chief Economist Haldane, meanwhile, said yesterday that there is "no rush" to hike interest rates. Attention will remain on Brexit negotiations, while UK January inflation data today will bring an economic focus to sterling markets, where we expect a downtick to 2.9% y/y from 3.0%. We advise a selling-into-rallies strategy with regard Cable.

    [USD, CHF]
    EUR-CHF broke lower last week, leaving a four-month low at 1.1446. The cross has since settled in the lower 1.1500s. We expect directional bias to remain to the downside while the risk-off phase persists. The cross is seeing its biggest correction seen since the Swiss franc started to trend lower in mid last year, reflecting EUR-USD declines amid dollar outperformance and euro selling amid the ECB's evident disquiet about the extend of the euro's recent rally, which looks to have had a dampening impact on hawkish voices at the ctral bank. There is also some concern appearing in market research notes about the Italian election in early March, given the popularity of anti-EU Northern League.

    [USD, CAD]
    USD-CAD has gained come 3 big figures from the lows seen in late January and early Februray. The stellar U.S. January jobs report lit a fire under the U.S. dollar. The data, having rekindled expectations for Fed tightening, also sparked a spike on sovereign yields and a risk-off theme in global equity and commodity markets, including oil prices. This is a supportive backdrop for USD-CAD, and we expect the pair to remain underpinned this week. Support is at 1.2475-76..

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