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By XE Market Analysis November 15, 2017 2:54 am
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    XE Market Analysis: Europe - Nov 15, 2017

    The yen has been outperforming amid a sharpening risk off theme in global markets. USD-JPY has declined to a two-week low at 113.03, and EUR-JPY corrected recent gains in falling under 113.50. AUD-JPY, which can be seen as a forex market proxy on global investor risk appetite, has fallen by 0.9% in making three-month lows. Oil and other commodity prices tumbled concomitantly with accelerating losses in global stock markets. The IEA's monthly report, which raised oil supply forecasts, has continued to weigh on crude prices. Japanese GDP data also fed the risk-off vibe, as it undershot expectations at 1.4% growth (seasonally adjusted) in Q3, while uncertainties about the scope of the U.S. tax reform plan is another factor at play. The strength of the yen in turn had an exacerbating effect on Japanese stock markets, where the Nikkei 225 dove over 1.5%, which was double the losses seen in China's Shanghai Composite index, for instance. In commodity markets, iron ore prices tumbled nearly 5%, which gave added impetus to short the Australian dollar. More of the same looks likely for now.

    [EUR, USD]
    EUR-USD clocked a fresh three-week high of 1.1817, extending the week's rally from levels near 1.1650. Uncertainties about the scope and timing of the tax reform plan have been weighing on the dollar, while some relatively upbeat economic data out of the Eurozone has aided the euro, although yen outperformance, concomitant with a sharpening risk-off theme in global markets, has knocked EUR-JPY lower. We expect EUR-USD's near-term bias will remain to the upside. Support is at 1.1784-86, while the October high at 1.1880 provides the next upside target.

    [USD, JPY]
    USD-JPY has declined to a two-week low at 113.03, driven by safe haven demand for the yen as the risk-off theme, in play since the beginning of the week, ratcheted up a gear or two. Oil and other commodity prices tumbled concomitantly with sharpening losses in global stock markets. The IEA's monthly report, which raised oil supply forecasts, has continued to weigh on crude prices. Japanese GDP data also fed the risk-off vibe, as it undershot expectations at 1.4% growth (seasonally adjusted) in Q3, while uncertainties about the scope of the U.S. tax reform plan is another factor at play. The strength of the yen in turn had an exacerbating effect on Japanese stock markets, where the Nikkei 225 dove over 1.5%, which was double the losses seen in China's Shanghai Composite index, for instance. In the bigger view, USD-JPY's two-month rally phase has been losing momentum over the last week or so, and a relatively sustained correction looks to be afoot. Former support at 113.25-26 now reverts as resistance. The late October lows at 112.95 and 112.98 mark support.

    [GBP, USD]
    Sterling has been trading mixed, gaining versus a generally soft dollar while losing ground to the euro and yen. Yesterday's UK October inflation data showed headline CPI remaining at 3.0%, a five-year high and unchanged from September, but contrary to the median forecast for an uptick to 3.1% y/y. Core CPI similarly underwhelmed. Cable has been trading in the low 1.30s for over a month, but risks for a downside break are rising given political and Brexit-related uncertainties, with open dissention breaking out in the ranks of the government. A series of daily lows in Cable that were seen in October between 1.3027 and 1.3039, form a key support zone. Resistance is at 1.3190.

    [USD, CHF]
    EUR-CHF has traded to the mid 1.16s, following EUR-USD's upward path and a run of encouraging economic data out of the Eurozone. The 33-month peak seen in late October at 1.1712 has crept back on the radar screen. With the Eurozone gathering growth momentum, and seeming to have conquered existential political threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

    [USD, CAD]
    USD-CAD has settled in the mid 1.2700s after logging a three-week low at 1.2665 last week, which reaffirmed an emergent downward trend. The pair's two-month rally phase from sub-1.2100 levels looks to have stalled over the last week or so. BoC Governor Poloz last week reaffirmed guidance given last month by saying that "the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate." We project the next BoC rate hike to be in March, and expect USD-CAD to remain in a downward path for now. Resistance is at 1.2700-05, and support is at 1.2600-02.

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