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By XE Market Analysis November 1, 2017 5:00 am
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    XE Market Analysis: Europe - Nov 01, 2017

    The dollar has been trading mixed so far today, losing ground to an outperforming pound, holding net steady versus the euro while gaining on the yen. The pound traded firmer for a third consecutive day, logging a near-two-week high versus the dollar, at 1.1.3292 and a one-month high against the euro. Sterling markets are anticipating the BoE to hike the repo rate for the first time in a decade at tomorrow's conclusion of the Monetary Policy Committee meeting. EUR-USD, meanwhile, continued to gravitate around the 1.1630-40 area, and USD-JPY logged a three-session high of 113.97 amid a backdrop of rallying stock markets across Asia and globally. EUR-JPY also hit a three-session peak, and other yen crosses also ground higher. Markets are expecting a tax reform announcement from the Trump administration, which is expected to happen on Thursday (a day later than previously advertised), and which is feeding a risk-on sentiment in markets. We expect the prevailing forex trends to hold good for now.

    [EUR, USD]
    EUR-USD has continued to gravitate around the 1.1630-40 area. The pair remains some 50 pips up on the lows seen in early trade yesterday, with some of the Catalonian risk discount having since unwound some. EUR-GBP has traded into one-month low territory, driven by pound outperformance ahead of the BoE's expected rate hike this week while EUR-CHF, in contrast, has lifted into three-session high terrain, with the Swiss franc concomitantly weakening as Catalonia risk continues to be priced out. We expect more of the same for these trends, though advise caution with regard to EUR-USD as the dollar as potential to rally on the tax reform announcement in the U.S., which is expected on Thursday.
    ..

    [USD, JPY]
    USD-JPY logged a three-session high of 113.95 amid a backdrop of rallying stock markets across Asia and globally. Markets are anticipating the Trump administration's tax reform announcement, which is expected to happen on Thursday (a day later than previously advertised), and which is feeding a risk-on sentiment in markets. The BoJ at its policy meeting earlier in the week, did the expected, and left policy on hold. New board member Kataoka voted for additional easing, while Governor Kuroda espoused dovish guidance at his press conference, warning that "abnormal" yen appreciation would hurt the economy and accelerate deflation, and that the central bank will continue with "powerful" accommodative monetary policy. Fundamentally we remain bearish of the yen. Last Friday's peak at 114.45, provides an initial target. Support is at 113.38-40.

    [GBP, USD]
    Sterling is up by an average 0.7% versus the G3 currencies on the w/w comparison, with the pound having outperformed for three successive sessions now, logging a near-two-week high versus the dollar, at 1.1.3292, and a one-month high against the euro. This gains have come despite UK data yesterday showing a fairly, although expectedly so, dour consumer sentiment survey, with the Gfk's measure falling to a headline reading of -10, from -9 in September. Sterling markets are discounting a 25bp rate hike from the BoE this Thursday, which would be the first tightening in a decade and would reverse last August's 'emergency' cut following the Brexit vote. We still think that the hike will be cloaked in dovish guidance, however, so anticipate a potentially strong sell-on-the-fact reaction on Thursday. Resistance is at 1.3300.

    [USD, CHF]
    EUR-CHF has lifted into three-session high terrain, with the Swiss franc concomitantly weakening as Catalonia secession risk continues to be priced out. The high so far is 1.1642, and the 33-month peak seen last week at 1.1712 is back in the scopes. We have been anticipating an eventual return to 1.2000, which is the former trading floor of the SNB's.

    [USD, CAD]
    USD-CAD has settled in the upper 1.28s after logging a peak of 1.2915 yesterday, which was a couple of pips shy of the near-four-month high that was clocked last Friday. BoC governor said yesterday that "we will be cautious" on future policy moves, re-affirming the central bank's push to dispel any notion that it is on a committed tightening path in the face of a moderating growth momentum in the economy, benign price pressures and ongoing uncertainty about NAFTA negotiations. We expect the bias will remain to the upside, with the Fed on track to hike the Fed funds rate by 25 bp in December.

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