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By XE Market Analysis September 22, 2017 2:47 am
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    XE Market Analysis: Europe - Sep 22, 2017

    The dollar has traded softer, correcting some following the sharp gains seen in the wake of the Fed's hawkish turn on Wednesday. EUR-USD nudged above 1.1960, up over a big figure form the post-Fed low, and USD-JPY tipped to a low of 111.65, correcting after rallying in eight of the previous nine sessions and putting distance in from yesterday's two-month peak at 112.71. EUR-JPY and other yen crosses also posted losses. While the BoJ's reaffirmation at its meeting this week of its commitment to yield curve control and ultra-accommodative monetary policy in general may be an endorsement for yen bears, North Korea's advance to becoming a nuclear power remains a wildcard risk for yen bears, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. This week's trading of verbal barbs between Trump and Kim won't have done unnoticed by market participants.

    [EUR, USD]
    EUR-USD nudged above 1.1960, up over a big figure form Thursday's post-Fed low. The move reflected a correction in the dollar following the sharp gains seen in the wake of the Fed's hawkish turn on Wednesday. We expect the dollar will remain bid on dips, anticipating that EUR-USD, after rallying strongly since April, from levels near 1.0500, now looks set for a relatively sustained corrective phase. A one-third correction would return EUR-USD to near 1.1600, which is a target framework that seems reasonable at this juncture. Resistance is at 1.1968-70.

    [USD, JPY]
    USD-JPY tipped to a low of 111.65, correcting after rallying in eight of the previous nine sessions. The move put some distance in from yesterday's two-month peak at 112.71. This mostly reflected broader dollar softness, with the buck correcting some following the sharp gains seen in the wake of the Fed's hawkish turn on Wednesday, though EUR-JPY and other yen crosses also posted losses. While the BoJ's reaffirmation at its meeting this week of its commitment to yield curve control and ultra-accommodative monetary policy in general may be an effective endorsement for yen bears, North Korea's advance to becoming a nuclear power remains a wildcard risk, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. This week's trading of verbal barbs between Trump and Kim won't have done unnoticed by market participants. For now, heading into the weekend, we favour taking a neutral position on the yen.

    [GBP, USD]
    Sterling was boosted by news yesterday that PM May is gearing up to break the deadlock in Brexit negotiations, and particularly by reports that the government is seeking a two-year transition period beyond Brexit in March 2019. Better than expected UK government borrowing data, and much stronger than expected retail sales data for August, have also this week been keeping the pound underpinned after BoE's Carney attempt at cooling cool tightening expectations on Monday. We have been advising sterling bulls to take the GBP-JPY or GBP-CHF.

    [USD, CHF]
    EUR-CHF has remained buoyant after clocking a new 32-month high at 1.1605 on Thursday. A an ebb in geopolitical tensions along with last week's SNB 's post-policy meeting guidance, where the central bank stated that the currency "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000.

    [USD, CAD]
    USD-CAD has settled in the lower 1.23s after bolting to a two-week high of 1.2391 on Wednesday, following the Fed's hawkish guidance, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up for now. This comes amid signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. Last week was the first up week in last five weeks, while momentum indicators were showing that the bear trend had been starting to look overstretched. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85. Canadian August CPI is up today, which we see at 1.6% after 1.2% in July. Retail sales are also due, expected to grow 0.3% in July.

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