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By XE Market Analysis February 23, 2018 3:59 am
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    XE Market Analysis: Europe - Feb 23, 2018

    The dollar has traded moderately higher, heading into the London interbank open with a 0.3% advance versed the euro, Swiss franc and yen, and comparatively more modest gains against the Australian and Canadian dollars. The New Zealand dollar has stood out as the weakness currency of the units we track, with a 0.7% loss versus the U.S. buck. The losses in the antipodean currency came despite above-forecast retail sales data out of New Zealand, with the dynamic reportedly coming amid position jigging in NZD-AUD, which has rebounded some over the last day following a period of notable underperformance that drove the cross to a six-month low earlier in the week. EUR-USD has ebbed back to around 1.2280, correcting from yesterday's 1.2352 high. USD-JPY has traded firmer today after two consecutive down days, lifting to the lower 107.0s from yesterday's four-session low at 106.59. The forex market has been continuing to factor in the recent revival of Fed tightening expectations and the associated lift in U.S. Treasury yields, which this week have pushed to multi-year highs across the curve. And while stock markets have picked up over the last week, the rebound has been moderate and key indexes remain well off the record highs that were seen in late January. In the current climate the dollar is tending to rally during phases of pronounced risk-off sentiment in global markets, or phases of muted risk-on, while outperforming during bouts of strong risk appetite. Japanese January inflation data had limited impact.

    [EUR, USD]
    EUR-USD has ebbed back to around 1.2280, correcting from yesterday's 1.2352 high. The move has reflected a general bid for dollars as the market continues to adjust to recent revival of Fed tightening expectations and the associated lift in U.S. Treasury yields, which this week have pushed to multi-year highs across the curve. And while stock markets have picked up since last week, the rebound has been moderate and key indexes remain well off the record highs that were seen in late January. In the current climate the dollar is tending to rally during phases of pronounced risk-off sentiment in global markets, or phases of muted risk-on, while outperforming during bouts of strong risk appetite. EUR-USD has resistance at 1.2339-4-, and support at 1.2229-30.

    [USD, JPY]
    USD-JPY has traded firmer today after two consecutive down days, lifting to the lower 107.0s from yesterday's four-session low at 106.59. The move has reflected a broader bid in the dollar, with markets continuing to factor in the recent revival of Fed tightening expectations, and with the associated lift in U.S. Treasury yields, which this week have pushed to multi-year highs across the curve. And while stock markets have picked up over since last week, the rebound has been moderate and key indexes remain well off the record highs that were seen in late January. In the current climate, the dollar is tending to rally during phases of pronounced risk-off sentiment in global markets, or phases of muted risk-on. Japanese January inflation data had limited impact. National headline CPI rose to a rate of 1.4% y/y, and the BoJ-watched core-core CPI figure lifted to 0.4% y/y, which both exceeded the median forecast by 0.1 percentage point. They core-core figure remains well off the BoJ's 2% target, and Japan's finance minister Aso said today that it is important that the BoJ maintains its current accommodative policy.

    [GBP, USD]
    The pound has been a relative underperformer over the last day. An unexpected downward revision in UK Q4 GDP, in the second release estimate released yesterday, imparted an underperforming bias in in the pound. GDP was revised to 0.4% q/q and 1.4% y/y versus the median forecasts had been for unchanged 0.5% q/q and 1.5% y/y outcomes. The 2017 growth figure was nudged lower, too, to 1.7%, which is the lowest annual growth rate since 2012 and also the weakest growth of any G7 economy. The data reinforces a picture of a relatively sluggish economy, relying on robust global growth as a support at a time when Brexit uncertainty is affecting household and business confidence. We expect the pound to retain a softer profile versus most currencies with BoE tightening expectations having eroded somewhat.

    [USD, CHF]
    EUR-CHF has declined over the last couple of days, pushing below the 1.1500 for the first time in nearly two weeks. This has correlated with a more offered tone in EUR-USD. The four-month low the cross saw earlier in the month at 1.1446 is back in focus.

    [USD, CAD]
    USD-CAD clocked a two-month high of 1.2761 yesterday, with the pairing being buoyed by a generally firmer tone in the U.S. dollar and a soft oil prices. Technically, USD-CAD price action has been in a bullish evolution since early February by Dow theory's higher highs and higher lows yardstick, while momentum indicators suggest that the uptrend is not so far looking stretched (the 14-day RSI reading is presently at 64.2, short of the 70.0 "overbought" level). Support is at 1.2665-68. Canadian CPI data for January is up today. We project a 0.4% m/m rebound in January after the 0.4% drop in December, while the y/y figure is seen slowing to a 1.5% y/y pace from 1.9% y/y on the back of a well documented base effect after a one-off elevation in prices in January of 2017. Average weekly earnings data is also due, where we expect a 0.3% m/m rise in December.

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