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By XE Market Analysis January 11, 2017 7:39 am
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    XE Market Analysis: North America - Jan 11, 2017

    The dollar picked up bids during the European AM as markets factored in the chance that U.S. president-elect Trump will reignite the "Trumpflation" rally. EUR-USD sank to the low 1.05s, posting a two-session low at 1.0513, while USD-JPY lifted to a two-session high at 116.46. The Australian and NZ dollars outperformed, AUD-USD clocking a one-month high just shy of 0.7400, while sterling underperformed following an unexpected blowout in the UK's trade deficit in November. Cable hit a 10-week low at 1.2095, subsequently recouping to the 1.2130 area where the pair was still showing a 0.3% decline on the day. USD-CAD continued its consolidation in the lower 1.32s.

    [EUR, USD]
    EUR-USD sank to the low 1.05s as the dollar firmed into the press conference of president-elect Trump. Markets will be looking to Trump for some clarity on the political and fiscal agendas of the incoming administration. We see the balance of risks as being skewed to Trump managing to reignite the Trumpflation rally. This would follow the implicitly dollar-bullish remarks from bond guru Gross remarks of yesterday, where he argued that a sustained break in the U.S. T-note yield above 2.60% -- which Gross reckons is much more important than Dow 20,000, $60-a-barrel oil or parity in EUR-USD -- would mark the beginning of a "secular bear bond market." Such a scenario would fuel another upward adjustment in dollar valuations against most other currencies, pushing EUR-USD lower despite a recent encouraging data and perky inflation figures out of the Eurozone.

    [USD, JPY]
    USD-JPY rose to two-session highs above 116.00 amid a broader rally in the dollar. The pre-Christmas trend high is at 118.66, which will be in the crosshairs should Turmp manage to revitalise expectations for infrastructure spending. USD-JPY supports are at 115.00-07, and 114.77-80 and 114.59-60, the latter of which encompasses the 50-day moving average. Resistance levels are 116.40-45 and 116.99-117.00, the latter of which marks the present situation of the 20-day moving average. The pair has lost upside trust over the Christmas/New Year period, Higher oil prices and recent weakness in the yen have eroded expectations for the BoJ to further expand monetary policy further, shifted the relative yield dynamic, though that could shift more firmly in the dollar's favour at Trump's conference.

    [GBP, USD]
    Cable has lifted to the 1.2130 area after trading below 1.2100 for the first time since October in the wake of the UK trade data, which showed an unexpected GBP 2.6 bln spike in the deficit in November, reaching GBP 4.2 bln. The rebound likely reflects profit taking/position trimming ahead the risk event that is Trump's first press conference since the election last November. The trade data offset forecast-beating production data, which were swelled by a reopening of operations in a North Sea oil field following a down period for maintenance of facilities. The spike in the trade deficit underlines that the weaker level of sterling, following the vote to leave the EU, won't be a one-way street. Indeed, the one of the principal reasons sterling is trading nearly a fifth down form before the vote to exit the EU is due to expectations for net slower trade performance in the years ahead, with markets not sharing the timescale optimism of Brexiteers for a quick establishment of new trade deals. Cable has trend resistance at 1.2155-60, ahead of the day's high at 1.2174.

    [USD, CHF]
    EUR-CHF has settled above 1.0700 after logging a two-week low at 1.0680 last week. The franc's strength against the euro, which is a proxy of the trade-weighted value of the Swiss currency, will be an ongoing concern for Swiss policymakers, although Swiss December CPI last week lifted to 0.0% y/y from -0.3% y/y in the previous month, breaking a run of 25 consecutive months of negative prints. This compares to an average CPI rate of -0.4% y/y for 2016. Base effects, both from oil and energy prices, and the franc, suggest that CPI will be biased higher over the coming months, which should help Swiss policymakers breathe easier.

    [USD, CAD]
    USD-CAD has settled in the lower 1.32s, above the three-week low of 1.3177 that was seen last Friday. The pair remains well off the ten-month peak that was logged in late December at 1.3589. Weakness in the U.S. buck coupled with Loonie-supporting gains in oil prices (which hit 18-month highs last week), have been weighing on the pairing. USD-CAD's 200-day moving average is at 1.3153. The pair hasn't traded below this average on a sustained basis since September last year.

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