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By XE Market Analysis January 11, 2017 3:08 am
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    XE Market Analysis: Europe - Jan 11, 2017

    Forex markets have been hunkering down ahead of the U.S. president-elect Trump's press conference, his first since the election, scheduled later on Wednesday, looking for some clarity on the political and fiscal agendas of the incoming administration. USD-JPY has settled around 116.00, above last week's one-month low at 115.07, and below the pre-Christmas trend high at 118.66. EUR-USD has become entrenched in a narrow orbit of 1.0550, holding just below the 50-day moving average at 1.0571. We see Trump's conference as something of a wildcard, though there is a chance he will manage to reignite the Trumpflation rally. This would follow bond guru Gross remarks of yesterday, where he argued that a sustained break in the U.S. T-note yield above 2.60% -- which Gross reckons is much more important than Dow 20,000, $60-a-barrel oil or parity in EUR-USD -- would mark the beginning of a "secular bear bond market." Such a scenario would fuel another upward adjustment in dollar valuations against most other currencies.

    [EUR, USD]
    EUR-USD has become entrenched in a narrow orbit of 1.0550, holding just below the 50-day moving average at 1.0571. Focus today is squarely on U.S. president-elect Trump's press conference, his first since the election, with markets for some clarity on the political and fiscal agendas of the incoming administration. We see the balance of risks as being skewed to Trump managing to reignite the Trumpflation rally. This would follow bond guru Gross remarks of yesterday, where he argued that a sustained break in the U.S. T-note yield above 2.60% -- which Gross reckons is much more important than Dow 20,000, $60-a-barrel oil or parity in EUR-USD -- would mark the beginning of a "secular bear bond market." Such a scenario would fuel another upward adjustment in dollar valuations against most other currencies, pushing EUR-USD lower despite a recent encouraging data and perky inflation figures out of the Eurozone.

    [USD, JPY]
    USD-JPY has settled around 116.00, above last week's one-month low at 115.07 and below the pre-Christmas trend high at 118.66. Markets are hunkering down ahead of the U.S. president-elect Trump's press conference, his first since the election, scheduled later on Wednesday, looking for some clarity on the political and fiscal agendas of the incoming administration. USD-JPY supports are at 115.00-07, and 114.77-80 and 114.59-60, the latter of which encompasses the 50-day moving average. Resistance levels are 116.40-45 and 116.99-117.00, the latter of which marks the present situation of the 20-day moving average. Overall, the pair has lost upside trust, with the pre-Christmas rally failing to reignite in the new year. Higher oil prices and recent weakness in the yen have eroded expectations for the BoJ to further expand monetary policy further, which has shifted the relative yield dynamic.

    [GBP, USD]
    The pound has found a footing after a spate of underperformance, which left between six- and 10-week lows versus the G3 currencies. Over the last week sterling is down by an average 1.8% versus the G3 currencies, and is off by 2.6% against the outperforming Australian dollar over this period. Concerns about Brexit, specifically PM May's suggestion that the government is setting a course for a "hard" Brexit, have more than offset the stellar readings of last week's December PMI surveys out of the UK. We remain cautiously bearish of Cable. Recent daily lows at 1.2199 and 1.2200 mark resistance.

    [USD, CHF]
    EUR-CHF has settled above 1.0700 after logging a two-week low at 1.0680 last week. The franc's strength against the euro, which is a proxy of the trade-weighted value of the Swiss currency, will be an ongoing concern for Swiss policymakers, although Swiss December CPI last week lifted to 0.0% y/y from -0.3% y/y in the previous month, breaking a run of 25 consecutive months of negative prints. This compares to an average CPI rate of -0.4% y/y for 2016. Base effects, both from oil and energy prices, and the franc, suggest that CPI will be biased higher over the coming months, which should help Swiss policymakers breathe easier.

    [USD, CAD]
    USD-CAD has settled in the lower 1.32s, above the three-week low of 1.3177 that was seen last Friday. The pair remains well off the ten-month peak that was logged in late December at 1.3589. Weakness in the U.S. buck coupled with Loonie-supporting gains in oil prices (which hit 18-month highs last week), have been weighing on the pairing. USD-CAD's 200-day moving average is at 1.3153. The pair hasn't traded below this average on a sustained basis since September last year.

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