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By XE Market Analysis January 9, 2018 6:47 am
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    XE Market Analysis: North America - Jan 09, 2018

    The dollar and yen rallied against most other currencies, while USD-JPY itself posted moderate declines. The yen was lifted by the BoJ announcing a tapering in QE, which sent USD-JPY some 70 pips lower to a three-session low of 112.49. EUR-JPY and other yen crosses saw a similar price action. The BoJ said that purchases of 10- to 25-year JGBs would be trimmed to Y190 bln from Y200 bln, with purchases of debt with maturities of over 25 years to Y80 bln from Y90 bln, tantamount to a baby step toward normalizing monetary policy in Japan. The dollar, meanwhile, posted fresh rebound highs versus the euro, sterling and the Australian, New Zealand and Canadian dollar, among other currencies. EUR-USD, for instance, logged a 12-day low of 1.1921 following a near 50 pip decline. Solid data out of the Eurozone, including a 3.4% m/m gain in industrial production and a nine-year low in the Eurozone jobless rate, had little supporting influence on the euro today.

    [EUR, USD]
    The euro has been under the cosh, despite continued solid data coming out of the Eurozone. EUR-USD ebbed to an 12-day low of 1.1921, and EUR-JPY and EUR-GBP, among other euro crosses, have also traded lower today. Technically, momentum indicators in EUR-USD have been turning bearish over the last week, flagging potential for a sustained correction following the three-week rally phase from levels under 1.1750. Resistance comes in at 1.2019-20, and 1.1983-85. Yesterday's daily close below these levels affirms the shift in directional bias to the downside.

    [USD, JPY]
    The yen spiked on the BoJ announcement of QE tapering, which sent USD-JPY some 70 pips lower to a 112.49 low. EUR-JPY and other yen crosses saw a similar price action. The BoJ announced that purchases of 10- to 25-year JGBs would be trimmed to Y190 bln from Y200 bln, with purchases of debt with maturities of over 25 years to Y80 bln from Y90 bln. The move is seen as a baby step toward normalizing monetary policy in Japan. Given this backdrop, along with ongoing geopolitical risks (North Korea and Iran most prominently at the moment), and risks for a correction in global stock markets, we expect the yen will by a buy on dips. USD-JPY's former trend support at 112.95-98 now reverts as resistance.

    [GBP, USD]
    Cable logged a three-session low of 1.3513, tracking declines in EUR-USD. The GBP-JPY cross has also declined today, amid yen outperformance, while the pound has clawed out a three-week high in the case against the underperforming euro. In the bigger view, Cable has been trending choppily higher since April last year, though momentum indicators, such as the 14-day relative strength indicator, have been showing 'bearish divergence' (declining while spot prices move higher) over the last couple of months, portending a possible directional shift. Cable has resistance at 1.3577-80, and support at 1.3513-15 and 1.3495. A daily close below the latter would affirm that a directional shift is afoot. On the UK fundamental front, the latest retail sales report today from the BRC found that non-food sales contracted 1.4% y/y in Q4 2017, the biggest decline of this measure since the crisis days of 2009. Prime minister May has reshuffled her cabinet, though to little impact on sterling markets. The FTSE 100 clocked another record high, which is largely a reflection of the global trend, being an index laden with major multinational corporations.

    [USD, CHF]
    EUR-CHF has come off the boil somewhat after last week clocking a 36-month high at 1.1778, with the cross since settling to the lower 1.17s. Over the last six months, the franc has seen its biggest weakening, both against the euro and in trade-weighted terms, since the Eurozone crisis took hold back in 2010. The Eurozone has seen political threats diminish, which has been accompanied by steady and assured pickup in growth momentum. This backdrop, along with the enticement of the SNB's -0.75% deposit rate, have seen the franc unwind any vestiges it had of being a safe haven currency. Assuming the Eurozone can continue to conquer 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 recent quarterly policy review), we anticipate EUR-CHF will make an eventual return to 1.2000, which was the former floor the central bank maintained until January 2015.

    [USD, CAD]
    USD-CAD has settled to a consolidation near 1.2400 after logging a 13-week low on Friday at 1.2355. The low was seen following a stellar Canadian December jobs report, which outshone the U.S. employment report for the same month. The data cemented market expectations for the BoC to hike rates by 25 bp at its policy meeting next week. USD-CAD has trend resistance at 1.2457-60. Ahead into 2018, how the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiatios go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD.

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