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By XE Market Analysis February 21, 2018 2:57 am
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    XE Market Analysis: Europe - Feb 21, 2018

    The dollar has remained buoyant, led by gains in USD-JPY, whicih lifted for a fourth straight session in logging a four-session high of 107.90, extending the rebound from the 15-month low seen last Thursday at 105.54. EUR-JPY and other yen crosses are also firmer, though by a lesser magnitude than USD-JPY, as a broader bid in the dollar has also been at play. EUR-USD posted a four-session low at 1.2317. Data out of Asia today included Japan's flash manufacturing PMI for February, which ebbed to a 54.0 headline reading form 54.8 in January, and mixed figures out of Australia. Chinese markets remained closed for the Lunar New Year. Japan's vice minister of finance for international affairs (the power position regarding forex intervention decisions), Asakawa, said that "I cannot help but assess the [yen] movements as one-sided," and noted that surging U.S. Treasury yields is the "beginning of a sea change."

    [EUR, USD]
    EUR-USD extended lower for a fourth consecutive session, this time logging a four-session low of 1.2310, extending the correction from the 38-month high seen on Friday at 1.2556. The pullback follows a six consecutive session run higher, correlating with 2-year U.S. Treasury yields logging new near 10-year highs. We expect more of the same. Former EUR-USD support at 1.2355-58 now reverts as resistance while last week's low at 1.2206 provides downside target.

    [USD, JPY]
    USD-JPY lifted for a fourth straight session, this time logging a four-session high of 107.90, extending the rebound from the 15-month low seen last Thursday at 105.54. EUR-JPY and other yen crosses are also firmer, though by a lesser magnitude than USD-JPY, as a broader bid in the dollar has also been at play. Japanese data today included the flash manufacturing PMI for February, which ebbed to a 54.0 headline reading form 54.8 in January. The vice minister of finance for international affairs (the power position regarding forex intervention decisions), Asakawa, said that "I cannot help but assess the [yen] movements as one-sided," and noted that surging U.S. Treasury yields is the "beginning of a sea change." We expect USD-JPY will remain buoyant for now. Support is at 107.10-12.

    [GBP, USD]
    Sterling perked up on Brexit news, specifically a report that the European Parliament is putting together a detail proposal calling for the EU to negotiate an "association agreement" giving Britain "privileged" access to the single market and membership agencies, according to unnamed sources cited by Reuters. The proposal has apparently been outlined to UK members of parliament, and will be voted on by the Brexit Steering Group around March 8 before being voted on at a plenary MEP meeting later in March. The proposal seems to contradict the position of EU chief Brexit negotiator, Barnier, who last week said that the British government's red lines meant that the UK was destined for the exits of the single market and customs union. The EU's proposal would hinge on the UK maintaining regulatory alignment. Potential hurdles include a possible multi-year timeframe until such a bespoke deal would be ratified by EU members, arbitration by ECJ, while close regulatory alignment may curtail the UK's scope for free-trade deal making outside the EU. This won't be pleasing to the more purist Brexiteers, but, so long as it will return border control to the UK, the proposal looks to be everything that PM May has been hoping for.

    [USD, CHF]
    EUR-CHF has been in consolidation mode in the mid 1.1500s over the last week after breaking lower in the week before, when a four-month low at 1.1446 was seen. The revival in risk appetite has helped prop up the cross.

    [USD, CAD]
    USD-CAD has lifted out of 10-day lows that were seen on Friday in the mid 1.24s. The pair has settled about two big figures higher, around 1.2650. We expect the pair to maintain a consolidation over the near term, with directional signals limited at present and with holidays in North America today reducing trading impetus.

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