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By XE Market Analysis January 11, 2018 7:54 am
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    XE Market Analysis: North America - Jan 11, 2018

    The dollar is firmer after China rebutted yesterday's Bloomberg story alleging that it was pondering a reduction on U.S. Treasury purchases. USD-JPY broke a run of three consecutive declines, which printed a seven-week low at 111.27 yesterday, in recouping to the upper 111.0s. China's State Administration of Foreign Exchange said that the Bloomberg report was based on "false" information. The remark saw the yield on the 10-year T-note tick lower while giving the dollar a lift. The narrow trade-weighted USD index recovered to within a few pips of 92.47 after seeing a low of 91.92 yesterday. EUR-USD has ebbed back under 1.1950 after yesterday foraying above 1.2000 in the wake of the Bloomberg story. Market participants will now return focus on incoming fundamental leads while continuing to digest this week's BoJ tapering of its QE program.

    [EUR, USD]
    EUR-USD has settled at net flat levels on the day near 1.1950. Price action has been choppy over the last day, rallying sharply above 1.2000 before retreating back below 1.1950. Beijing's rejection of the story that it was thinking of reducing its purchases of U.S. Treasuries gave the dollar a lift, which in turn weighed on EUR-USD. The volatility convolutes directional signals, so we advise caution for now. Resistance comes in at 1.1955-60 and 1.2019-20.

    [USD, JPY]
    USD-JPY has traded firmer today after a three consecutive day run lower, which printed a seven-week low at 111.27 yesterday. The pair has since lifted to the upper 111.0s. China officially rebutted yesterday's Bloomberg article that cited unnamed sources alleging that it was pondering a reduction in purchases of U.S. Treasuries, which helped the dollar find its feet today. China's State Administration of Foreign Exchange sadi that the report was based on "false" information. The remark saw the yield on the 10-year T-note tick lower while giving the dollar a lift. The BoJ's QE tapering announcement of earlier this week is still being digested, though some market narratives downplay the move as being little more than a baby step, with the central bank likely to remain committed to its YCC (yield curve control) policy in the face of the chronic undershooting of the inflation target. A former key support zone in USD-JPY at 112.00-05, now marks resistance.

    [GBP, USD]
    Cable has declined for three straight days, today logging a two-week low of 1.3473. This extends the correction from the 1.3613 high that was seen on January 3. Bellwether supermarkets Tesco and M&A both announced disappointing sales over the Christmas period, which caught attention as it follows the weakest non-food retail sales performance in eight years in BRC data for Q4, adding to the picture of consumers being afflicted by real wage declines. 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 to the downside. Cable has resistance at 1.3495 and 1.3513-15, and support at 1.3424-25.

    [USD, CHF]
    The Swiss franc encountered selling this week after EUR-CHF dipped under 1.1700, which propelled the cross back above 1.1700 and putting last week's three-year high at 1.1778 back in the scopes. The cross has been on a broadly upward path since mid last year, reflecting economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015, which is something we anticipate will be achieved in the coming months.

    [USD, CAD]
    USD-CAD's rebound gathered pace over the last day, with the pair gaining by over a big figure in setting a two-week high at 1.2583. The move reflects reports that the U.S. may pull out of NAFTA, and partly a rebound in the U.S. dollar after Beijing refuted yesterday's story alleging that it was thinking of reducing U.S. Treasury purchases. This backdrop has offset the Loonie-positive implications of the march high in oil prices, which hit a 37-month peak yesterday by the WTI benchmark measure, and expectations for the BoC to hike interest rates by 25 bp next week. 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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