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By XE Market Analysis August 10, 2017 7:47 am
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    XE Market Analysis: North America - Aug 10, 2017

    Risk aversion remained in play despite U.S. Secretary of State Tillerson's reassurances. USD-JPY turned back under 110.00 after failing to sustain gains above here during the Tokyo session, making an intraday low at 109.76 but remaining above yesterday's eight-week low at 109.56. EUR-JPY and other yen crosses also turned lower, with the yen remaining in demand as a safe haven. The pan-Europe Stoxx 600 equity index was down by 0.4%, as of the early PM session, and S&P 500 futures were showing a 0.4% loss. The New Zealand dollar took a hit following dovish guidance from the RBNZ policymakers in the wake of its expected decision to leave its cash rate at 1.75%. While the Kiwi central bank's SMP wasn't as dovish as markets had anticipated, RBNZ's McDermott subsequently advised markets to recognise policymakers' discomfort with the recent appreciation of the NZ dollar. The market responded to the cue, and NZD-USD dove over 1.3% to a one-month low at 0.7252. EUR-USD drifted downwards since the pre-Europe session in Asia, logging an intraday low at 1.1704 before recouping to around 1.1715, which still left the pair down by 0.35% on the day. Cable recouped the 1.3000 level following an above-forecast headline in June production data out of the UK, though a weak manufacturing and a blow out in the trade deficit offset.

    [EUR, USD]
    EUR-USD drifted downwards since the pre-Europe session in Asia, logging an intraday low at 1.1704 before recouping to around 1.1715, which is still down by 0.35% on the day. EUR-GBP was showing losses of similar magnitude, while EUR-JPY was off by 0.6% as the yen rediscovered some safe haven bids with investor sentiment remaining nervous. EUR-USD looks likely to revisit the 13-day low seen yesterday at 1.1688. The price action suggests that the nascent correction in the pairing, following a four-month rally phase, and which was sparked by last Friday's stellar U.S. jobs report and consequential rekindling in expectations for the Fed to make a quantitative tightening as soon as next month, remains in play. While the Eurozone economic picture has been continuing to improve, the ECB has made clear that it is no rush to taper, having signalled that it will review its position in the autumn. With market positioning having been heavily skewed to the long side of EUR-USD, we think the common currency looks ripe for a relatively sustained correction phase. We look for initial losses to support at 1.1653-55. Resistance is at 1.1750-52.

    [USD, JPY]
    USD-JPY turned back under 110.00 after failing to sustain gains above here during the Tokyo session, making an intraday low at 109.76 but remaining above yesterday's eight-week low at 109.56. EUR-JPY and other yen crosses also turned lower, with the yen remaining in demand as a safe haven. The pan-Europe Stoxx 600 equity index was down by 0.4%, as of the early PM session, and S&P 500 futures were showing a 0.4% loss. Market participants will continue to monitor the geopolitical situation closely in the days ahead. Normally tensions stemming from North Korea's antics tend to simmer down quickly, though the stakes have increased as the rouge nation draws near to developing a credible nuclear weapon threat. A Reuters poll BoJ found 31 from 35 economists expecting that the BOJ's next move will be to reduce policy stimulus, but not before late 2018 at the earliest.

    [GBP, USD]
    Cable lifted back above 1.3000 in the wake of UK production and trade data releases, despite the ONS stats office estimating that the data imply a downward revision of 0.1 of a percentage point to the Q2 GDP calculation. June industrial production beat expectations in rising 0.5% m/m, up from 0.0% m/m in May, but manufacturing output flat m/m and rose 0.6% y/y, undershooting the median forecast for 1.1% y/y growth. Trade data, meanwhile, showed the overall deficit blowing out to an eight-month peak of GBP 4.6 bln, kicking into touch that idea that the weaker pound in the wake of the Brexit vote last year would boost net trade (a simplistic view that ignored the offsetting impact that higher import costs). We remain bearish of sterling. The latest Reuters poll found a strong consensus among 70 analysts for the BoE to leave monetary policy on hold until 2019, and found that the consensus view was for UK growth to continue to lag Eurozone growth, with risk of recession pegged at 20% for the coming year. Fundamental Brexit uncertainties remain, something which the BoE highlighted last week as curtailing business investment decisions. Cable has long-term trend support at 1.2932--36, and resistance at 1.3106-08.

    [USD, CHF]
    EUR-CHF picked up back to around the 1.1400 level, leaving a two-week low at 1.1260, which was seen yesterday. The flare-up in tensions between the U.S. and North Korea had sparked a mass of position trimming of franc shorts that had been recent established, with the Swiss currency itself showing it still retains some vestiges of being a safe haven, despite the SNB's best efforts to dismantle this in recent years. Assuming the Eurozone recovery remains on track, and should geopolitical tensions cool, we would continue to expect the franc to weaken.

    [USD, CAD]
    USD-CAD clawed out a four-week peak at 1.2730. The relative strength of the U.S. jobs report and trade data relative to Canada's last week, coupled with a pause in the nascent up trend in oil prices, have been keeping USD-CAD underpinned. We anticipate that the gains will prove to be a temporary phase, and for the big-picture bear-trend to reassert before long, basing this view on expected steady-to-firmer oil prices and more BoC tightening.

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