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By XE Market Analysis February 12, 2018 7:46 am
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    XE Market Analysis: North America - Feb 12, 2018

    The dollar mostly recovered moderate losses seen in Asia, where conditions were thin today in the absence of Tokyo markets. The narrow trade-weighted USD index (DXY) is presently down 0.2% at 90.24, up from the day's low at 90.08, which is a two-session low. EUR-USD backed off after logging a high of 1.2297, with the pair meeting decent selling interest into 1.2300, settling back in the mid 1.2200s. ECB's Nowotny said that "we in the ECB are certainly concerned about attempts by the United States to politically influence the exchange rate." Nowotny added that this will be a topic at the upcoming G20 summit. USD-JPY traded moderately softer today, making a low of 108.51 during the London AM session following a quiet Asian session in the absence of Tokyo markets today. The pair has remained comfortably above Friday's five-month low at 108.04. Japanese PM has reportedly approved BoJ Governor Able for a second term, which should maintain scope for continued accommodative policy in Japan, despite signs that some members are favouring ratcheting back on stimulus.

    [EUR, USD]
    EUR-USD backed off after logging a high of 1.2297, with the pair meeting decent selling interest into 1.2300, settling back in the mid 1.2200s. The move reflected a broader softening in the dollar during the Asian session, correlating with a rebound in risk appetite and associated recovery in global stock markets, though weekend remarks by ECB's Nowotny remarks grabbed attention in Europe as he said that "we in the ECB are certainly concerned about attempts by the United States to politically influence the exchange rate." Nowotny added that this will be a topic at the upcoming G20 summit. We remain bearish of EUR-USD, with the pair having established a downtrend (lower highs, lower lows) over the last week. We base this view on the rekindled commitment of the Fed to a tightening policy course (which is looking to be on track to hike the funds rate four times this year, starting at the March FOMC), juxtaposed to the ECB's evident disquiet about euro strength. Initial EUR-USD resistance is at 1.2335-38.

    [USD, JPY]
    USD-JPY has traded moderately softer today, making a low of 108.51 during the London AM session following a quiet Asian session in the absence of Tokyo markets today. The pair has so far remained comfortably above Friday's five-month low at 108.04. Japanese PM has reportedly approved BoJ Governor Able for a second term, which should maintain scope for continued accommodative policy in Japan, despite signs that some members are favouring ratcheting back on stimulus. Market participants will maintain a close focus on global stock markets, with the recent sharp correction likely to have heralded in a era of volatility as historically rich valuations meets a tipping point as near-decade long epoch of ultra monetary stimulus comes to a definitive end. This backdrop would likely keep USD-JPY a sell-on-rallies trade. The pair has initial resistance at 108.90-92.

    [GBP, USD]
    Sterling has started the week on a settled footing after Her Majesty's currency finished last week under pressure. The decline was sparked by remarks by the EU's chief Brexit negotiator, Barnier, that a transition deal (which would allow the UK to remain in the single market for up to two years after Brexiting on 29th March 2019) is "not a given," and that border checks on the Irish border were "unavoidable" -- which is seen by many political pundits as potentially major blocking point. The BoE's hawked-up policy guidance, delivered last Thursday, had come with a Brexit caveats attached. With Brexit negotiations having entered a crucial period, we expect the pound to remain a sell on rallies versus the dollar.

    [USD, CHF]
    EUR-CHF broke lower last week, leaving a four-month low at 1.1446. The cross has since settled in the lower 1.1500s. We expect directional bias to remain to the downside while the risk-off phase persists. The cross is seeing its biggest correction seen since the Swiss franc started to trend lower in mid last year, reflecting EUR-USD declines amid dollar outperformance and euro selling amid the ECB's evident disquiet about the extend of the euro's recent rally, which looks to have had a dampening impact on hawkish voices at the ctral bank. There is also some concern appearing in market research notes about the Italian election in early March, given the popularity of EU-sceptic Northern League.

    [USD, CAD]
    USD-CAD has gained come 3 big figures from the lows seen in late January and early Februray. The stellar U.S. January jobs report lit a fire under the U.S. dollar. The data, having rekindled expectations for Fed tightening, also sparked a spike on sovereign yields and a risk-off theme in global equity and commodity markets, including oil prices. This is a supportive backdrop for USD-CAD, and we expect the pair to remain underpinned this week. Support is at 1.2475-76.

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