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By XE Market Analysis February 17, 2017 3:24 am
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    XE Market Analysis: Europe - Feb 17, 2017

    The dollar has consolidated losses, with major pairings showing less than a net 0.2% chance since the New York close yesterday as London interbank traders take to their desks. USD-JPY has settled in the mid 113s after logging a low of 113.07 in the New York PM session yesterday, which completed a near two-big figure drop from Wednesday's peak. EUR-USD has steadied in a narrow range shy of yesterday's 1.0670 high. It's a similar picture in other pairings. We retain a bullish view on the dollar the back of the contrasting Fed versus most other central bank policy outlooks, with the former expected to trigger three more 25 bp hikes this year.

    [EUR, USD]
    EUR-USD has steadied in a narrow range shy of yesterday's 1.0670 high. The breach of, and daily close above, the 50-day moving average at 1.0621 affirms a more positive technical picture. Political uncertainties into elections in France, the Netherlands and Germany, however, are a blight on the Eurozone outlook, being loaded with existential threats, and this backdrop should keep the euro capped. This would be especially so in the case of EUR-USD with the Fed heading for multiple rate hikes this year.

    [USD, JPY]
    USD-JPY has consolidated losses driven by the recent dollar correction and souring risk appetite in global markets, which reflects a flagging in the reflation trade. A low was logged during the New York afternoon session yesterday, at 113.07, a near two big figure decline from the highs seen on Wednesday. We retain a bullish view on the back of the contrasting Fed versus BoJ policy outlooks, with the former expected to trigger three more 25 bp hikes this year and the latter still pondering whether its down with easing. This view assume that global stock markets will hold up, which is a necessary condition in taking a bearish yen view.

    [GBP, USD]
    Cable has settled back under 1.2500 after failing to sustain gains above here. The pair has lost its link with EUR-USD, as EUR-GBP has tracked higher, and GBP-JPY lower. On the week, sterling is trading at near net unchanged levels versus the dollar and euro, and 0.5% for the better in the case against the yen. The UK's official retail sales report for January is up today, where we anticipate a 0.6% m/m rebound after the unexpectedly sharp 1.9% m/m drop in December, though be warned as already-released January surveys of the sector by the CBI and BRC suggest downside risk. We think that Cable will be prone to bouts of declines in the months ahead, with the Fed heading to further tightening and the BoE likely to remain on a neutral footing. The start of the UK's exit negotiations with the EU, which is likely to be a rough process, is also now nearly upon us, with PM May reportedly gunning for a March-7 trigger-date of Article 50. Cable support is at 1.2440. The 20-day moving average at 1.2524 marks resistance.

    [USD, CHF]
    EUR-CHF is has traded heavily so far this week, settling in the mid 1.06s. Last week's eight-month low at 1.0632 is back in range. The weakness of the cross stems from rising political risks in France into the April Presidential election. The Swiss franc was little-affected by the latest volley of SNB-speak last Monday, with president Jordan saying that negative interest rates are "indispensable" in capping an overvalued currency, while and his colleague Maechler argued that there would be "heavy consequences" of an even stronger franc for the Swiss economy and pension funds. The franc's strength against the euro, which is a good proxy of the broader trade-weighted value of the Swiss currency, evidently remains an ongoing concern for Swiss policymakers. At least the franc is one currency unlikely to attract a Trump accusation of being undervalued.

    [USD, CAD]
    USD-CAD remains heavy, declining in five of the last six trading sessions and logging an 11-day low at 1.3009 yesterday. The pair has since recouped to around 1.3070. The price action marked a failed test of support, which we previously highlighted, at 1.3014 and 1.3000. On the upside, resistance is now marked by the 20-day moving average at 1.3087, and by 1.3100. The 200-day moving average is at 1.3183. With OPEC struggling to induce upside traction in oil prices, we have been tentatively recommending buying dips on the Fed versus BoC view and Trump's desire to get a better deal for the U.S. out of a revised NAFTA agreement.

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