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By XE Market Analysis December 14, 2017 6:57 am
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    XE Market Analysis: North America - Dec 14, 2017

    The dollar recovered some of the ground it lost following the U.S. CPI miss and in the wake of the Fed's post-policy meeting statement yesterday. EUR-USD has ebbed into the lower 1.18s. USD-JPY clocked a rebound high of 1.1288 after logging a logging a five-session low of 1.1246 in Tokyo trade. The high is still nearly 50 pips below the levels prevailing just ahead of the release of U.S. CPI data yesterday. EUR-USD also remained about a big figure down on its pre-U.S. CPI levels. The narrow trade-weighted USD index (DXY) was changing hands at 94.44 bid, as of the late London AM, only moderately up on the six-session low posted during the Asian session at 93.34. We expect the rebound will prove to be short lived.

    [EUR, USD]
    EUR-USD has settled around 1.1820 after an early lift stalled above 1.1830. The pair remains about a big figure up on the levels that were prevailing ahead of the U.S. CPI report yesterday, data which sparked a down phase in the dollar. Focus now squares on the ECB's policy announcement today, which will be accompanied by updated economic projections. The big question is whether the central bank's president, Draghi, will commit to an end date for the QE program, an event that would likely spark strong euro buying. Even if he refrains from this, we still anticipate that the ECB will revise up Eurozone growth and inflation projections, and note a tightening output gap. This would follow solid preliminary December PMI data out of the Eurozone, which are finishing 2017 with six-and-a-half-year high readings. We take a bullish view of EUR-USD. Support is at 1.1791-92, and we look for a return to November highs in the mid 1.19s.

    [USD, JPY]
    USD-JPY logged a five-session low of 112.46, extending a decline from the four-week high seen on Tuesday at 113.75. Yield differentials have driven the move following the sub-forecast CPI readings out of the U.S. yesterday, and with the Fed, after delivering the fully discounted 25 bp rate hike, refraining from shifting up guidance to four rates hikes in 2018, instead sticking with three. Technically, a broadly sideways chop centred, roughly, between 108.0 to 115.00, has been persisting for eight months now. More of the same looks likely, though near-term bias is downward. Resistance comes in at 113.10, which was a former support.

    [GBP, USD]
    Cable rallied to a four-session peak of 1.3448 on the back of the dollar's underperformance over the last day, though the pound has trade more indifferently versus other currencies, such as in the cases against the yen and euro. A much stronger than expected retail sales figure for November was largely boosted by Black Friday sales, with big ticket domestic electrical devices driving the gain. Sterling markets largely overlooked the data as given the one-off boost to sales, although the underlying, three-month on three-month sales figure still rose 0.8%. Brexit-related uncertainty also still prevails, despite last week's breakthrough on divorce terms, as we're still non-the-wiser as to what Brexit will look like -- whether a hard exit or a soft exit, which comes amid the backdrop of a higher convoluted political picture in the UK. Cable has support is at 1.3410, and resistance at 1.3469-70.

    [USD, CHF]
    EUR-CHF has seen choppy price action over the last couple of weeks, having turned lower after several attempts above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We still remain bullish over the medium term, however. Assuming the Eurozone has conquered existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable (the central banks meets on policy today), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1620.

    [USD, CAD]
    USD-CAD ebbed to a six-day low of 1.2791 before settling around 1.2830. Yield differentials drove the dip following benign inflation data out of the U.S. yesterday, which was backed up by a less hawkish than had been expected guidance from the Fed after it delivered a fully discounted quarter point rate hike. On the other hand, softer oil prices have undermined the Canadian dollar somewhat, while today's speech by the BoC governor, Poloz, it likely to reaffirm a slow-go approach to further tightening, and can be expected to refrain from making any commitment to rate hikes. We also expect manufacturing and housing data out of Canada today and tomorrow, to come in on the softer side of expectations. USD-CAD looks set for a phase of limited directional bias. Support is at 1.2790-91.

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