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By XE Market Analysis August 11, 2017 8:19 am
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    XE Market Analysis: North America - Aug 11, 2017

    After modest gyrations overnight, the dollar is little changed from Thursday's N.Y. closing levels. EUR-USD trades near 1.1765, with USD-JPY at 109.15, after printing new two-month lows of 108.91 in London. Risk-off conditions have again largely prevailed, with the U.S/N. Korea war of words driving market fears. USD-CAD has remained over the 1.2700 mark, as WTI crude prices drop to near $48/bbl, after briefly trading over $50 yesterday, as cable ran into sellers into the 1.3000 mark, with that pairing remaining in sell-the-rally mode on economic and Brexit uncertainties. Traders await the key U.S. July CPI figures, which will factor importantly into the FOMC's rate calculus. We're forecasting a 0.2% overall rise, from unchanged previously, and a 0.1% increase in the core measure from June's 0.1% gain. Risk is for weaker numbers after the disappointing PPI figures Thursday.

    [EUR, USD]
    EUR-USD has settled around in the mid 1.17s after running into good selling interest in the upper 1.17s. The pair had picked up following U.S. data disappointments yesterday, with both initial claims and PPI figures disappointed, the latter of which flags downside risk to CPI data today. Markets' attention will remain on the escalating rhetoric between the U.S. and North Korea, though this hasn't caused directional influence on EUR-USD so far. We see the EUR-USD as having entered a choppy consolidation phase following a pronounced rally from early April through to early August. 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. EUR-USD has resistance at 1.1785 and 1.1800, and support at 1.1638-40.

    [USD, JPY]
    USD-JPY dove to a new eight-week low, this time at 108.90, and EUR-JPY fell to a one-month low at 128.18 as the yen continued to rally as investors flocked to safe haven assets and currencies. Trump doubled down on his threats to North Korea, maintaining edgy market sentiment, with Wall Street and stock markets in Asia taking a fresh beating and the Vix volatility index hitting a nine-month high. Markets look set to remain choppy, depending on how developments evolve. USD-JPY has initial resistance at 109.44-45, while the June-14 low at 108.81 and the April low at 108.12, the latter being a nine-month low, provide downside waypoints.

    [GBP, USD]
    Cable matched Thursday's 1.2952, three-week low, after failing pierce the 1.3000 mark, topping at 1.2999. The pairing remains in sell-the-rally mode, as economic and Brexit concerns remain lust under the surface. Earlier in the week, 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. 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 steadied on either side of 1.1300 overnight, with the currency's bona fides as a safe-haven currency losing some shine. The CHF had nonetheless rallied earlier in the week when the first ratchet-up in U.S. versus North Korean tensions was heralded by Trumps "fire and fury" threat, a move that was driven by a wave of recently-established EUR-CHF long positions herding for the exits. The lack of sustained franc-selling, despite the risk backdrop remaining at the averse end of the scale, suggests that the franc hasn't made a return as a safe haven currency of choice.

    [USD, CAD]
    USD-CAD printed fresh near one-month highs of 1.2753 overnight, supported by further oil price declines, and continued geopolitics-driven risk-off sentiment. 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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