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By XE Market Analysis December 15, 2017 7:28 am
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    XE Market Analysis: North America - Dec 15, 2017

    The dollar has been trading mostly softer amid uncertainties about the tax reform bills prospects after Republican Senator Marco Rubio threated to vote against the bill, joining his GOP colleague, Mike Lee, in demanding that a child tax credit for working families is expanded. The USD index (DXY) ebbed during London AM dealings back to the 93.50 area, down from yesterday's high at 93.75, maintaining the heavy technical tone that's been in place since Wednesday's release of benign CPI data and the Fed's less hawkish than expected guidance following its latest FOMC meeting. USD-JPY remained heavy, earlier logging a fifth successive daily low, at 112.03, which is the lowest the pair has traded in nine days. EUR-USD managed to recoup some of its post-ECB losses in returning to 1.1800. The dollar also posted fresh five-week and two-month lows versus the Australian and New Zealand dollars, respectively. Cable was the main exception in the general softer dollar story The pound underperformed despite EU leaders opening the way for negotiations on a post-Brexit trade deal with a convoluted political backdrop in the UK remaining a concern.

    [EUR, USD]
    EUR-USD managed to recoup some of its post-ECB losses in returning to 1.1800. The move reflect broader dollar softness amid a new uncertainty about the prospects for the U.S. tax overhaul going through. The pair still remains up on the levels that were prevailing ahead of the U.S. CPI report on Wednesday, data which sparked a down phase in the dollar, a theme added to by the less hawkish than anticipated guidance from the Fed. The ECB left policy on hold, and while up-revising growth projections it emphasized a continued benign inflation outlook, noting that "an ample degree of stimulus is still needed." We see EUR-USD has remaining in a trading range roughly centred on 1.1700 and 1.1900.

    [USD, JPY]
    USD-JPY clocked a fresh nine-day low of 112.03, making the fifth consecutive day that the pair has surpassed its previous day's low. Mostly weaker stock markets in the Asia-Pacific region today, and a mixed-to-lower tone across European bourses so far, along with a solid reading from the latest quarterly Tankan survey of business confidence in Japan, which showed the best quarter for Japanese manufacturers since 2006, are factors that have been conducive for yen strength. In the bigger, technical view, USD-JPY's has been in broadly sideways chop centred, roughly, between 108.0 to 115.00, for eight months now. More of the same looks likely, though near-term bias is downward. A key support is near to, marked at 111.99-112.00, which encompasses the December-6 low.

    [GBP, USD]
    The pound underperformed, despite EU leaders opening the way for negotiations on a post-Brexit trade deal. The convoluted political backdrop remains a concern, and uncertainty about what Brexit will actually look like -- whether a hard or soft form -- is likely to persist for most of next year. Cable ebbed to a 1.3394 low after opening in London around the 1.3440 mark.

    [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 bank reaffirmed this commitment at its quarterly policy review yesterday), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1620.

    [USD, CAD]
    USD-CAD has remained heavy, sinking back to around 1.2750 after failing to sustain rebound gains above 1.2800 yesterday, though the pair has so far remained above yesterday's nine-day low at 1.2714. Yield differentials have been swinging this week in favour of the downside for USD-CAD. A speech by BoC governor Poloz yesterday inspire a spike in Canadian yields as he stressed that the word "caution" is note a code word for being on hold while saying that policymakers are increasingly confidence that less stimulus will be needed. The U.S. dollar dynamic has also shifted following benign CPI inflation data out of the U.S. on Wednesday, 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, though we take a bearish view of USD-JPY. Resistance is at 1.2790-91.

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