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By XE Market Analysis October 10, 2017 3:23 am
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    XE Market Analysis: Europe - Oct 10, 2017

    The dollar has continued to trade softer. EUR-USD climbed to a nine-day high of 1.1789, while the greenback touched fresh lows versus sterling, the Australian and Canadian dollars, and other currencies. USD-JPY continued to do its own way, briefly run higher to 112.82 before ebbing back to near net unchanged levels around 112.60-65. Tokyo markets returned from a three-day weekend, and there would have been a relatively high amount of netted corporate forex transactions today, with the date being a multiple of five. USD-JPY remains off Friday's three-month high at 113.44. North American markets return to full force today. A big focus will be on Catalan President Puigdemont's address, although this is scheduled after the London close at 6 PM local time.

    [EUR, USD]
    EUR-USD lifted to a nine-day high of 1.1789, partly on dollar softness but also on euro firmness, as the common currency has made gains versus the pound, yen, and Swiss franc, among other currencies. Incoming data have been euro positive, including German trade data today, which showed a 3.1% m/m jump in exports, which drove a widening in the country's trade surplus. A major focus will be Catalan President's Puigdemont speech today in Barcelona, at 6 PM local time, where he will lay out his position following the referendum for independence. The relatively calm tone in Spanish markets over the last day suggests that participants are not expecting a unilateral declaration of independence.

    [USD, JPY]
    USD-JPY saw a brief run higher to 112.82 before ebbing back to near net unchanged levels around 112.60-65. Tokyo markets returned from a three-day weekend, and there would have been a relatively high amount of netted corporate forex transactions today, with the date being a multiple of five. USD-JPY remains off Friday's three-month high at 113.44. The relatively dovish stance of the BoJ versus the Fed has been keeping the pair bid on dips, though geopolitical tensions and risks are serving to curtail the upside, and the one-month bullish phase, from the early-September low at 107.31, has been showing signs of flagging. Momentum indicators, such as the 14-day RSI, have been in 'bearish divergence', where new highs are seen but at the same time as trend momentum declines. A key support zone, formed by a series of recent daily lows, is at 112.21-33.

    [GBP, USD]
    Cable rebounded above its Friday high in making a peak of 1.3183 putting in some space from the one-month low at 1.3027. A broader ebb in the dollar since Friday's unexpected decline in U.S. jobs has supported the pair, while the pound itself has also lifted versus the euro and other currencies as it rebounds from a period of pronounced weakness. A report in the London Times highlighting on ONS error causing an under-estimation of companies' costs has given the BoE rate hike case a boost, providing support for the pound. Today's gain follows the biggest down week the pound has since August 2016. Disarray in the Prime Minister May's Tory party, which is still can't make up its mind between a hard or a soft Brexit, had been weighing sterling. The September manufacturing PMI surveys last week affirmed painted a picture of a stagnating economy, and productivity data showed a second successive quarter of contraction, contrary to the trends among the economy's major peers. We maintain a bearish view of Cable. Resistance is at 1.3150-52.

    [USD, CHF]
    EUR-CHF has lifted back above 1.1500, logging a two-week high at 1.1515. The move reflects a broader bid in the euro, with markets evidently not expecting the Catalans to unilaterally declare independence at this stage (Catalan President Puigdemont is set to address lawmakers in Barcelona today). Former EUR-CHF resistance at 1.1488-90 and 1.1500 now revert as supports. We still expect the franc trade on a generally softer path versus the dollar, and other currencies. The SNB stated at its quarterly policy review last month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July.

    [USD, CAD]
    USD-CAD ebbed to a three-session low of 1.2510, extending the correction from last week's five-week high at 1.2600. We anticipate demand on dips. The Fed is back on a tightening march, while the Canadian dollar is likely to remain with a neutral-to-softer bias, in place since BoC Governor Poloz unexpectedly threw cold water on market expectations for further rate hikes in saying that the central bank was not on a predetermined path while emphasizing that there are "important unknowns" to be watched closely.

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