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By XE Market Analysis April 16, 2018 7:32 am
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    XE Market Analysis: North America - Apr 16, 2018

    The dollar traded moderate softer. EUR-USD clocked a two-session high of 1.2373 from the 1.2330-35 area while the narrow USD trade-weighted index (DXY) ebbed by 0.25%. AUD-USD also traded firmer, and USD-CAD softer. Cable traded above 1.4300 for the first time since January. Elsewhere, the Russian rouble came back under the cosh following the weekend declaration from the U.S. that will be announcing new sanctions this week on Russia as a consequence of its backing the Syrian regime and following the alleged chemical attack on civilians. The HKMA has defended the HK$ for a fifth time since last Thursday, today selling US$457 bln to defend the HK$7.8500 level.

    [EUR, USD]
    EUR-USD clocked a two-session high of 1.2373 on a dollar-selling move from the 1.2330-35 area. The U.S. currency concurrently has declined versus other units. The narrow USD trade-weighted index (DXY) is showing a 0.25% dip on the day, and Cable and AUD-USD are trading firmer, the former foraying into three-high terrain. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.

    [USD, JPY]
    USD-JPY and yen crosses have ebbed moderate lower in early-week trading. Today was the first time markets had a chance to react to the U.S.-led strike against alleged chemical plants and storage facilities belong to Syrian regime, which bid the yen, despite most stock markets gaining across the east Asia region. USD-JPY's dip breached Friday's low at 107.25, marking a correction in an upside trend that's been in development for two weeks now, from mid 104.00 levels. This follows a three consecutive week run higher. Support is at 106.90-92. Japan has quite a busy data calendar this week, starting with revised February industrial production (Tuesday), where we expect a bounce of 4.1% m/m in February after dropping 6.8% m/m in January.

    [GBP, USD]
    Cable lifted above 1.4300 for the first time since January. Her Majesty's currency also posted gains versus the euro and yen, and is up some 3% on the year-to-date, with Cable making last week its fifth up week out of the last six. Various reasons are been cited in market narratives. One is the expectation for the BoE to hike rates at its monetary policy meeting next month, which would follow last November's first-in-a-decade hike, and take the repo rate to 0.75%. Another is seasonal, with the end of the UK's fiscal year often leading to a pickup in sterling demand. And another thread of market conjecture centres on the benefit of last month's EU and UK's agreement on a 21-month post-Brexit transitory period, which has calmed nerves in the business and investor community by buying more time to figure out the Northern Irish border situation and negotiate new trading terms. Market participants are also looking to this week's UK inflation and labour market data (due Wednesday and Tuesday, respectively), which are expected to show CPI remaining at 2.7%, above the BoE's 2.0% target, and the unemployment rate remaining at the multi-decade 4.3% low. Cable has trend support at 1.4194-96.

    [USD, CHF]
    EUR-CHF broke sharply higher last week, extending to a fresh 39-month high at 1.1889, with subsequent dips having remained shallow. A background support for the cross is the widespread expectation for the SNB to remain strongly committed to negative interest rates, until after the ECB starts tightening. SNB board member Maechler recently bemoaned a still "highly valued" currency and argued that premature tightening in monetary policy would be counterproductive. EUR-CHF has rallied nearly 11% from mid last year. We have a long standing target for the cross to return to the 1.2000 level, which was the SNB's cap that was abandoned back in January 2015.

    [USD, CAD]
    USD-CAD has remained heavy after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that's been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2634-36.

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