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By XE Market Analysis March 12, 2018 4:18 am
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    XE Market Analysis: Europe - Mar 12, 2018

    The dollar has traded steady-to-softer in early-week trading so far. USD-JPY dipped below Friday's low in making 106.35 before rebounding above 106.50. The market was rocked a little by demands for the resignation of Japan's finance minister, Aso, who subsequently said that he would stand his ground. The intrigue is linked to a political scandal involving Aso's Ministry of Finance and a sale of state land, though the episode has had little impact on stock markets, with the Nikkei 225 closing up by 1.8%, outperforming most Asian markets, which were in bullish mood following Friday's "Goldilocks" U.S. employment report. The cooling in tensions on the Korean peninsular is also in the mix of sentiment influences, with Pyongyang reportedly wanting to sign a peace treaty with the U.S. AUD-USD and NZD-USD are showing the biggest movement out of the main currencies, with the former up 0.3% and the latter up by 0.5%, with the currencies benefiting from the risk-on vibe. AUD-USD logged a two-week high of 0.7875. EUR-USD is moderately higher, above 1.2320, nearing-in on Friday's 1.2334 peak.

    [EUR, USD]
    EUR-USD is moderately higher, above 1.2320, nearing-in on Friday's 1.2334 peak. Friday's "just tight" U.S. jobs report -- strong jobs but soft average earnings -- along with the cooling of tensions on the Korean peninsular have fed a risk-on vive in global markets, which in turn has been a backdrop weighing on the dollar, despite firming expectations for the Fed to make four 25 bp rate hikes by the end of the year. Market participants will continue to monitor the development of Trump's tariffs. In the big view, EUR-USD has returned to midway levels of a range that's been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. Support is at 1.2275.

    [USD, JPY]
    USD-JPY dipped below Friday's low in making 106.35 before rebounding above 106.50. The market was rocked a little by demands for the resignation of Japan's finance minister, Aso, who subsequently said that he would stand his ground. The intrigue is linked to a political scandal involving Aso's Ministry of Finance and a sale of state land. The episode has had little impact on stock markets, with the Nikkei 225 closing up by 1.8%, outperforming most Asian markets, which were in bullish mood following Friday's "Goldilocks" U.S. employment report (strong jobs but soft average earnings). The cooling in tensions on the Korean peninsular is also in the mix of sentiment influences. Assuming global risk appetite holds up, and that global trade wars don't get out of hand, we would expect USD-JPY to trade higher from current levels. Support is at 106.-08.

    [GBP, USD]
    Cable has been in consolidation mode over the last week, centred on 1.3800-1.3900. Brexit-related noise continues to spout forth, but remains too inconclusive to impart much directional bias on sterling. The ECB is in the process of formalizing a response to the laid-out UK position on Brexit. The next key day is March 22nd, the next EU leaders' summit, and following that the two sides will look to hammer out a concrete agreement (on a future trading relationship, the Irish border and a transition period) before October this year, which would leave the 27 EU countries time to ratify it before March 29th next year, when the UK formally leaves the EU and, most likely, when a two-year transition period starts before the UK will fully break free of the single market, customs union, and the jurisdiction of the European Court of Justice. It's more than probable that a new trade deal will need much more time to be agreed on (the Canadian-EU trade deal was seven years in the making).

    [USD, CHF]
    EUR-CHF has been upwardly mobile since late February, clocking a six-week high at 1.1741 last Thursday. The break higher has tracked a broader rebound in the common currency, with markets finding some relief as the new political picture starts to emerge following the Italian election on Sunday. While the results were messy, and brought Eurosceptic parties to the fore, the general view is that neither the euro or the EU will face an existential crisis. The EUR-CHF cross, which rallied some 10% from mid last year, has been emblematic of the euro's recovery over the last year, with the franc unwinding latent safe haven premium as existential uncertainties under the Eurozone and EU come off the boil. Former resistance is at 1.1563-65 now reverts as support.

    [USD, CAD]
    USD-CAD has drifted lower after posting a nine-month peak of 1.3001 in the early part of last week, which capped a bullish run seen since mid January. The Canadian dollar has managed to find its feet on news that Trump will exempt Canada, along with Mexico, from his proposed steel an aluminium tariffs (though this will be temporary and subject to how the White House sees NAFTA negotiations go). We anticipate that USD-CAD will remain in a consolidation for now. Momentum indicators had been flashing "overbought" lately following a strong rally over the six weeks from sub-1.2300 levels.

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