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By XE Market Analysis January 12, 2018 3:25 am
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    XE Market Analysis: Europe - Jan 12, 2018

    The dollar has remained on a softening tack, with the narrow trade-weighted USD index (DXY) extending yesterday's declines from levels around 92.50 to a 91.75 low today,, which matches the four-month low that was posted on January 2. The greenback has logged fresh lows versus the euro, sterling and Australian dollar, among other currencies, in the early part of the Asia-Pacific session after Fed's Dudley saying that the case for gradualist approach to tightening monetary policy remains strong, arguing that the pace of rate hikes could be accelerated if need be. EUR-USD clocked a five-day peak at 1.2066, with subsequent dips remaining shallow. AUD-USD traded above 0.7900 for the first time since late September, logging a peak of 0.7904. The hawkish-leaning ECB minutes, yesterday, and the BoJ's QE tapering announcement earlier in the week, have been factors generating a softer dollar theme this week, via EUR-USD buying and USD-JPY selling, respectively. We anticipate more of the same for now.

    [EUR, USD]
    EUR-USD clocked a five-day peak at 1.2066, with subsequent dips remaining shallow. This extended the gains that were ignited by yesterday's hawkish-leaning ECB minutes. The pairing has been choppy this week, with the dollar falling, rallying and then declining once again, though and upside bias has emerged on the back of the minutes from the ECB minutes. EUR-JPY and other euro crosses have also lifted. EUR-USD has support at 1.2003-05, and resistance at 1.2084-89, levels which encompass recent highs.

    [USD, JPY]
    USD-JPY has steadied after a run of four down days, with the pair holding a narrow range in the low 111.0s after logging a six-week low yesterday, during the New York PM session, at 111.04. Yen crosses have seen a similar price action, while the dollar logged fresh lows versus the euro, sterling and Australian dollar, among other currencies, in the early part of the Asia-Pacific session after Fed's Dudley argued that the case for gradualist approach to tightening monetary policy remains strong. The hawkish-leaning ECB minutes, yesterday, and the BoJ's QE tapering announcement earlier in the week, have been factors generating a softer dollar theme this week, via EUR-USD buying and USD-JPY selling, respectively. We anticipate more of the same for now.

    [GBP, USD]
    Sterling has been trading mixed in recent days, losing ground to the euro, which has been outperforming on the back of the ECB minutes yesterday, while gaining on the dollar, which has been the main shorting vehicle for euro longs. There remains a lack of strong domestic leads out of the UK. Incoming data have been mixed, with strong production data being offset by a blowout in the trade deficit, while the BRC's report this week revealed the sharpest decline in non-food retail sales in eight years in the final quarter of 2017. Next Tuesday's release of UK CPI data for December will give market participants the next top tier data. Cable recovered to a 1.3598 peak earlier, which is exactly, by our data, a big figure up on the day's low, which is a two-week nadir. Support is at 1.3495 and 1.3513-15. A cluster of recent daily highs at 1.3577-86 mark a key resistance zone.

    [USD, CHF]
    The Swiss franc encountered selling this week after EUR-CHF dipped under 1.1700, which propelled the cross back above 1.1700 and putting last week's three-year high at 1.1778 back in the scopes. The cross has been on a broadly upward path since mid last year, reflecting economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015, which is something we anticipate will be achieved in the coming months.

    [USD, CAD]
    USD-CAD has retreated to the lower 1.25s after logging a high-for-the-year at 1.2590 yesterday. A broader retreat in the U.S. dollar coupled with Loonie-supporting reports of a possible breakthrough in NAFTA negotiations, have weighted on USD-CAD. A lot of focus will remain on the NAFTA negotiations, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices and expectations for the BoC to hike interest rates by 25 bp next Wednesday. Ahead into 2018, how the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiatios go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD.

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