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By XE Market Analysis February 14, 2018 7:18 am
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    XE Market Analysis: North America - Feb 14, 2018

    The dollar rebounded during the London AM session after declining in Asia. Position squaring was reported with market participants eyeing the release of the U.S. CPI data for January, which may have a potentially large bearing on Fed tightening expectations. EUR-USD ascended to a five-day high of 1.2392 before ebbing back toward the mid 1.23s. European data showed German growth slowing to 0.6% q/q from 0.8% in Q3. USD-JPY settled to the mid 107.00s after logging a 15-month low in Tokyo trade, at 106.84, breaching on route reportedly barriers of large option structures at 107.00. Japanese growth data today disappointed, with Q4 GDP falling to 0.5% q/q growth in they seasonally adjusted annualized figure, off the median forecast of 0.9%. Elsewherem EUR-SEK dipped on today's Riksbank announcement, logging a four-session low at 9.8735, on the news that Deputy Governor Ohlsson voted against the majority for unchanged policy in favour of hike the repo rate by 25 bp to -0.25%. However, he was the lone dissenter in the Riksbank's decision to leave the repo rate at -0.50%, while the central bank trimmed its inflation forecast for the year ahead, and EUR-SEK was quick to more than reverse its post-announcement losses.

    [EUR, USD]
    EUR-USD ascended to a five-day high of 1.2392 as the dollar continued to deflate during the Asian session, before ebbing back toward the mid 1.23s during the London AM session. European data showed German growth slowing to 0.6% q/q from 0.8% in Q3. Market participants are looking to the release of U.S. CPI data later today as likely to evidence still-lacklustre price pressures. Indeed, we expect headline U.S. CPI to dip to 1.8% y/y in January from 2.1% y/y December. This is keeping the dollar under the cosh. And given the prevailing sentiment, any unexpected acceleration would likely be a strong dollar buying cue as signs of rising price pressures would be seen as the final show to fall for the Fed to fully commit to a cyclical tightening schedule. EUR-USD support is at 1.2335, and resistance is at 1.2425-27.

    [USD, JPY]
    USD-JPY settled to the mid 107.00s during the London AM session after logging a 15-month low in Tokyo trade, at 106.84. The breach of 107.00 was reportedly significant, having being a massive option barrier level, though momentum soon ebbed and profit taking and positon squaring buoyed the pair, with market participants eyeing the release of the U.S. CPI data for January, which may have a potentially large bearing on Fed tightening expectations. Equity markets in Asia were mixed today, where Japanese markets have continued to decline, with the Nikkei 225 closing with a 0.5% loss, contrasting to the 1%-plus gains that the main indexes in South Korea and Hong Kong have seen. Japanese growth data today disappointed, with Q4 GDP falling to 0.5% q/q growth in they seasonally adjusted annualized figure, off the median forecast of 0.9% growth and with Q3 revised lower, to 2.2% from 2.5%.

    [GBP, USD]
    Cable lifted to a three-session of 1.3924 before tipping back to the mid 1.38s in a dynamic that was driven by and ebb and flow of the dollar. The pound has fared less well versus other currency, trading at two-month lows in the case against the yen and at one-month lows versus the euro, with the UK currency failing to sustain gains that were seen after yesterday's above-forecast UK CPI data. This rise-and-fall price action is similar to that seen in the wake of last week's BoE policy announcement and inflation report. Underlying uncertainty about the Brexit negotiation process, which was a point of emphasized contingency for the BoE last week in context of its upgraded growth forecasts, has been feeding a sell-into-rallies theme for sterling. Next UK data of note will be January retail sales figures, on Friday. Brexit negotiations, which are in a crucial phase, will likely remain a wild card font of volatility for sterling.

    [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 consolidated for a third day, holding in a narrow range around 1.2525-1.2600 after spiking to 1.2690 on Friday. The pair is 3 big figures up on the lows seen in late January and early February, before the stellar U.S. January jobs report (released on February 2nd) lit a fire under the U.S. dollar. The data rekindled expectations for Fed tightening and sparked what may well turn out to be an era of volatility in global asset markets. This is a supportive backdrop for USD-CAD, and we expect the pair to remain broadly underpinned. Support is at 1.2475-76. Canada's calendar is quiet this wee. The December manufacturing report (Friday) is expected to reveal a 0.5% gain in shipment values after the 3.4% surge in November. Before this, the Teranet/National HPI for January is up tomorrow, while the January existing home sales report is on tap, on Thursday.

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