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By XE Market Analysis September 12, 2017 3:24 am
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    XE Market Analysis: Europe - Sep 12, 2017

    The dollar carved out new rebound highs during the Asia session. USD-JPY continued to lead the way as markets react to a sense of reduced risks stemming from North Korea and Hurricane Irma, with the former having refrained from further missile testing and the latter now having weakened to a tropical storm rating while tentatively proving to be less damaging than feared to the U.S. mainland. USD-JPY logged a one-week high at 109.58, which is over two big figures up on Friday's low at 107.31. EUR-USD clocked a three-session low at 1.1945. The dollar has since come off from its highs, while USD-CAD ebbed to a two-session lows just under 1.2100. With a good chunk of the pre-weekend risk-off positioning having been reversed, and with the likelihood of further sabre-rattling antics from North Korea as the rogue nation draws nearer to nuclear ICBM capability, we don't recommend following the dollar rebound, especially in the case of USD-JPY. Sterling markets will have UK inflation data today, where we expect the headline CPI rate to lift to 2.8% y/y from 2.6%.

    [EUR, USD]
    EUR-USD clocked a three-session low at 1.1945 as the dollar continued to rebound from its pre-weekend selloff. Less damaging than feared hurricane damage in Florida and a refrain from fresh sabre-rattling antics by North Korea have driven the rebound, though we advise caution, given the likely continuation of Pyongyang's nuclear ICBM ambitions. EUR-USD support is at 1.1887-90.

    [USD, JPY]
    USD-JPY continued to lead a broader dollar rebound as markets react to a sense of reduced risks stemming from North Korea and Hurricane Irma, with the former having refrained from further missile testing and the latter now having weakened to a tropical storm rating while tentatively proving to be less damaging than feared to the U.S. mainland. USD-JPY logged a one-week high at 109.58, which is over two big figures up on Friday's low at 107.31. With a good chunk of the pre-weekend risk-off positioning having been reversed, and with the likelihood of further sabre-rattling antics from North Korea as the rogue nation draws nearer to nuclear ICBM capability, we don't recommend following USD-JPY higher, and instead advise on expecting a resumption of the downward trend.

    [GBP, USD]
    Sterling has continued to trade mixed, losing some ground to the dollar while gaining versus the euro and yen so far this week. Cable has rallied quite strongly over the last couple of weeks, but has during the same phase traded at eight-year lows versus the euro. We continued to advise caution with regard to medium- to longer-term outlooks with regard to the pound given the uncertainties about the Brexit process and evident stagnation that's already been seen in the UK economy. UK inflation data are due today, where we expect the headline CPI rate to lift to 2.8% y/y from 2.6%. An as-expected outcome would be consistent with BoE projections and won't likely impact sterling much. Cable has support is at 1.3092-93.

    [USD, CHF]
    EUR-CHF has lifted to three-session highs near 1.1450 amid the reversal out of risk-off positioning that's been in play since the weekend. This has continued a choppy phase in EUR-CHF trading, although the net takeaway is that the cross has been continuing to orbit the 1.1400 level, which has been the case for about a month now. Safe haven demand for the Swiss franc has ebbed and flowed over this period. SNB boss, Jordan, signalled last week that the central bank remains fully committed to its ultra-accommodative monetary policy settings, saying that he and his colleagues did not know if recent franc weakness, which is desirable from their perspective, would sustain. In the scenario that geopolitical tensions ebb back, we would by bullish of EUR-CHF. Assuming the Eurozone economic revival remains on track, which would help quell ECB angst about euro strength, and assuming the ECB commits to QE policy tapering at some point over the next month or two, we would expect the EUR-CHF to eventually recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD has drifted to a three-session low under 1.2100, returning focus to Friday's 28-month low at 1.2062. We expect the pair's downtrend, which has been in place since May, will resume. The Canadian employment report last Friday was supportive of the BoC's path to normalize monetary policy. The BoC hike of last Wednesday was the second tightening of the cycle, following the quarter point hike of July, and came earlier that markets had been anticipating. Policymakers justified the tightening on strong growth, which has been broadening and becoming increasingly self-sustaining. The BoC has been viewing the Canadian economy as having escaped the drag from the downside oil price shock of recent years.

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