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By XE Market Analysis October 12, 2017 3:27 am
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    XE Market Analysis: Europe - Oct 12, 2017

    The dollar has continued to track lower, this time following the release of the minutes to the September FOMC meeting. While overall maintaining expectations for a 25 bp hike in the funds rate, the minutes weakened the conviction for this a tad, with some policymakers expressing concern that low inflation was not "transitory." The narrow trade-weighted USD index has seen a low of 92.64, which is the lowest level seen since September 26. EUR-USD lifted for a fifth consecutive session, logging a 17-day peak of 1.1880. The buck also posted fresh lows versus sterling, the dollar-bloc currencies and most emerging market currencies, among other units. USD-JPY has been heavy, in the lower 112s, although has remained above the 112.08 low clocked yesterday amid the latest bout of threatening hyperbole from North Korea (promising the U.S. a "hail or fire").

    [EUR, USD]
    EUR-USD lifted for a fifth consecutive session, logging a 17-day peak of 1.1880. The release of the FOMC minutes to the September meeting weakened the conviction of there being another 25 bp hike in the Fed funds rate in December, which served to refuel the upside bias in EUR-USD. This comes with the Catalan independence movement becoming less of a worry-point for financial markets amid signs that Barcelona is cracking and with Madrid taking a hard-line stance on the would-be secessionists. EUR-USD has near-term trend support at 1.1843-45, and resistance at 1.1898-1.1900.

    [USD, JPY]
    USD-JPY has remained heavy, in the lower 112s, but has remained above the 112.08 low clocked yesterday amid the latest bout of threatening hyperbole from North Korea (promising the U.S. a "hail or fire"). USD-JPY had on Tuesday seen low a low at 111.99. While the relatively dovish stance of the BoJ versus the Fed has been keeping the pair bid on dips, geopolitical tensions are serving to curtail the upside. The one-month bullish phase, rooted at the early-September low at 107.31, has been flagging. Momentum indicators, such as the 14-day RSI, have been in 'bearish divergence', where new highs in the underlying market are seen but at the same time as trend momentum declines. USD-JPY support is at 111.88.

    [GBP, USD]
    Cable logged a one-week high of 1.3265 amid a broadly softer dollar. The move extends the recovery from last Friday's one-month low at 1.3027, which was the culmination of the biggest weekly decline since August 2016. Aside from the weaker dollar, helping foster the turn higher was the ONS stats office disclosing of an error that caused an underestimation of companies' costs data, which has given the BoE rate hike case a boost. Incoming UK data have been mixed, however, with above-forecast production data being offset by a worse than expected blowout in the trade deficit, and with headline strength in the BRC retail survey for September being offset by the fact that the data was largely pushed up by higher prices. Brexit concerns remain sharply in focus, with both Chancellor Hammond and PM May having yesterday noted the possibility of a no-deal exit from the EU. We still prefer selling Cable into strength.

    [USD, CHF]
    EUR-CHF rallied to a two-week high at 1.1548 amid a broader pick-up in the euro after the Catalan leader de-escalating tensions with Madrid by calling for a pursuit of dialogue. Former EUR-CHF resistance at 1.1488-90 and 1.1500 now revert as supports. We expect the franc to remain on a generally softer path. The SNB stated at its quarterly policy review last month that it remained committed to ultra-accommodative monetary policy settings, and 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 posted a new correction low of 1.2432, extending the pullback from Friday's six-week peak at 1.2600. The move has been driven by broader softness in the U.S. dollar, which is been persisting since the open of trading on Monday and given fresh legs by the FOMC minutes, which weakened the conviction of market expectations for a December rate hike. The Canadian dollar, meanwhile, is likely to remain on 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.

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