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By XE Market Analysis August 17, 2017 7:58 am
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    XE Market Analysis: North America - Aug 17, 2017

    EUR-USD ebbed back under 1.1700, over 70 pips down from pre-Europe levels in a move composed of about one part general dollar firming and about three parts general euro weakening. Relatively sustained selling of EUR-JPY, traded at three-day lows, drove broader declines in the common currency. Eurozone data showing a bigger than expected trade surplus in June and a final July HICP figure of 1.3% y/y (unrevised from the initial estimate), was pretty much ignored by forex markets. Option-related selling of euros was being noted in market chatter. The yen firmed against a number of currencies today, though not the dollar, which has found itself better bid after yesterday's drop off. Global stock markets flagged despite the dovish-leaning tone in yesterday's release of the FOMC minutes, with concerns centring on U.S. politics and lowered expectations for the pro-growth parts of Trump's agenda to be implemented. EUR-JPY logged a four-session low at 128.77, and other yen crosses posted declines, though USD-JPY clawed back above 110.00, up from yesterday's three-day low at 109.66.

    [EUR, USD]
    EUR-USD ebbed back under 1.1700, over 70 pips down from pre-Europe levels in a move composed of about one part general dollar firming and about three parts general euro weakening. Relatively sustained selling of EUR-JPY, traded at three-day lows, drove broader declines in the common currency. Eurozone data showing a bigger than expected trade surplus in June and a final July HICP figure of 1.3% y/y (unrevised from the initial estimate), was pretty much ignored by forex markets. Option-related selling of euros was being noted in market chatter, which some sizable positions reportedly expiring at today's New York cut, with strikes at various levels. The 1.1700 level was being singled out, as a breach would trigger option-related stop selling in spot.

    [USD, JPY]
    The yen firmed against a number of currencies today, though not the dollar, which has found itself better bid after yesterday's drop off. Global stock markets flagged despite the dovish-leaning tone in yesterday's release of the FOMC minutes, with concerns centring on U.S. politics and lowered expectations for the pro-growth parts of Trump's agenda to be implemented. While hardly a run for the hills, this backdrop has been sufficient to call demand for the yen's safe haven credentials. EUR-JPY logged a four-session low at 128.77, and AUD-JPY came off the boil after earlier logging a nine-day high. CHF-JPY ebbed to around 113.75 from levels above 114.00. USD-JPY, meanwhile, clawed back above 110.00, up from yesterday's three-day low at 109.66.

    [GBP, USD]
    Sterling traded mixed over the last day, gaining versus a generally softer euro while losing ground to the dollar, despite an above-forecast print in UK July retail sales. This follows underperformance phase, with the pound showing an average 2.3% loss to the G3 currencies over the last month. The pound had lost nearly 11% of its value relative to the euro over the last four months, before today's fractional rebound. The relative GDP performance of the UK versus the Eurozone economy's best shines a light on the causes of this exchange dynamic, with the UK posting Q1 and Q2 growth figures of 0.2% q/q and 0.3% q/q versus the Eurozone's 0.5% q/q and 0.6% growth outcomes. With significant Brexit uncertainties remaining, we expect more to come of this trend.

    [USD, CHF]
    EUR-CHF has tipped back below 1.1400 to the mid 1.13s, extending the losses from levels near 1.1500. Outsized losses in USD-CHF have been a factor amid political turmoil and dovish-leaning FOMC minutes. The price action also suggests that the Swiss franc still has vestiges of being a safe haven, despite the SNB's best efforts to dismantle it. We still look for EUR-CHF to eventually "close the gap" by returning to the 1.2000 level, which had been the SNB's floor until abandoning it in January 2015.

    [USD, CAD]
    USD-CAD dove to a two-week low at 1.2604 as the dollar weakened following dovish-leaning FOMC minutes and news of the collapse of Trump's business councils. We still favour the downside, anticipating the BoC to make a second 25 basis point rate hike in October, which would take the policy rate to 1.00%. We see two more 25 basis point rate increases next year.

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