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By XE Market Analysis January 18, 2018 3:06 am
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    XE Market Analysis: Europe - Jan 18, 2018

    The dollar edged out fresh recovery highs versus the euro and other currencies. EUR-USD logged a four-session low of 1.2165 before recouping to around 1.2200. The move reflected a dollar dynamic, with EUR-JPY and other euro crosses having held relatively steady today, even though the airing of concerns about the common currency's ascent by some ECB officials, along with concerns on the German political front, helped catalysed the correction from 37-month highs in EUR-USD. USD-JPY lifted to a four-session high of 111.48 in Tokyo today, extending the recovery from Wednesday's four-month low at 1110.19. The recovery broke a run of seven consecutive down . Good selling interest into 111.50 capped the advance, however. Equity markets also turned mixed-to-lower in Asia, despite Wall Street ascending to fresh highs, having been lifted by earnings and Apple's announcement on a large cash repatriation. Elsewhere, USD-CAD has settled at near net unchanged levels relative to levels that were prevailing just ahead of yesterday's BoC rate hike (which met expectations while be accompanied with cautious guidance).

    [EUR, USD]
    EUR-USD logged a four-session low of 1.2165 before recouping to around 1.2200. The move reflected a dollar dynamic, with EUR-JPY and other euro crosses having held relatively steady today, even though the airing of concerns about the common currency's ascent by some ECB officials, along with concerns on the German political front, helped catalysed the correction from 37-month highs in EUR-USD. We think the near-term direction bias will remain to the downside. Key near-term resistance is at 1.2255-57, while more mean reversion of the trend may see the 20-day moving average, presently sitting at 1.2059 challenged.

    [USD, JPY]
    USD-JPY lifted to a four-session high of 111.48 in Tokyo today, extending the recovery from Wednesday's four-month low at 1110.19. The recovery broke a run of seven consecutive down sessions. The price action reflects a broader rebound in the dollar. Good selling interest into 111.50 capped the advance, however, while the broader bid in the dollar also waned. Equity markets also turned mixed-to-lower in Asia, despite Wall Street ascending to fresh highs, having been lifted by earnings and Apple's announcement on a large cash repatriation. USD-JPY has near-term support 111.05-7, and resistance at 111.48-50.

    [GBP, USD]
    Sterling has been the strongest currency over the last day, posting a near 0.5% average gain versus the dollar, euro and yen. Remarks yesterday by BoE MPC member Sauders warning that pay growth will accelerate in the UK during 2018 and that unemployment may drop to multi-decade lows under 4.0%, gave Hey Majesty's currency a boost, reportedly encouraging interbank and near-term speculative accounts to run at sell stops in EUR-GBP. Cable racked up another post-Brexit vote high of 1.3845, though would need to rally by another 10 big figures to close the gap left by the June 2016 EU referendum. We don't advise reading too much into Sauders remarks with regard to expectation-shifting potential on BoE policy. Saunders is on the hawkish end of the spectrum at the Monetary Policy Committee, and he conceded that while the nearer-term outlook "is not terrible," it "is not great" either, noting that Brexit-related uncertainties will remain concern. Next key data of the UK comes with Friday's retail sales report for December, where we expect a decline of 0.8% m/m (median -0.6% m/m), which would correct some of the 1.1% m/m gain that was seen in November.

    [USD, CHF]
    EUR-CHF has settled to the mid 1.17s after clocking a new 37-month high at 1.1833 on Monday. 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, after a volatile bout, has settled at near net unchanged levels near 1.2450 relative to levels that were prevailing just ahead of yesterday's BoC rate hike. The 25 bp hike met expectations, and was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

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