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By XE Market Analysis January 19, 2018 6:38 am
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    XE Market Analysis: North America - Jan 19, 2018

    The USD index (DXY) has tracked lower despite new U.S. yield lows, with the narrow trade-weighted index down 0.3% at 90.20, bringing Wednesday's 37-month low to within 6 ticks. Yield gains across the globe, coupled with a burgeoning global risk-on sentiment and an associated investor hunt for higher-beta assets, along with concerns that the stopgap funding bill in the U.S. won't pass the Senate, have been weighing on the dollar. The U.S. currency is now in its fifth consecutive quarter of declines, which is the most prolonger downturn since 2007-08. The buck had rallied by nearly 30% from 2014 lows through to the highs seen in January last year, marking the prevailing downtrend as a long-term correction of that move.

    [EUR, USD]
    EUR-USD lifted back above 1.2250 from sub-1.2100 levels amid a general decline in the dollar amid concerns about whether the U.S. Senate will pass the stopgap funding bill to avoid a government shutdown, which would start as soon as tomorrow if the vote fails to pass. EUR-JPY and other euro crosses have been comparatively steady for the most part, while EUR-CHF has tumbled for a third consecutive session, reflecting an erosion in broad-based support for the common currency after some ECB policymakers this week expressed concern about the pace of recent gains in the common currency. EUR-USD has support at 1.2182-84. Tuesday's 37-month high is at 1.2323, which would almost certainly be breached in the event that the Senate reflects the funding bill today.

    [USD, JPY]
    USD-JPY fell over 0.5% in making a three-day low of 110.49 before finding a toehold. News that the Senate vote on the temporary funding bill to avoid a government shutdown has been delayed until later today weighed on the greenback. The House passed it yesterday, so its down to the Senate, where passage is by no means guaranteed. The yen has also been finding bids in its own right into next week's BoJ policy meeting, which will be the first since the central bank announced a tapering its asset purchase program.

    [GBP, USD]
    Cable has remained underpinned, continuing to track EUR-USD higher amid a generally soft dollar environment. The pair clocked a new post-Brexit vote peak of 1.3945. The move today largely reflects dollar weakness, though the pound has outperformed over the last week, having been boosted midweek by remarks BoE MPC member Sauders, who he warned that pay growth will accelerate in the UK during 2018 and that unemployment may drop to multi-decade lows under 4.0%. Next key data of the UK comes with Decmber retail sales, today, where we expect a decline of 0.8% m/m (median -0.6% m/m), which would correct some of the 1.1% m/m gain that was seen in November.

    [USD, CHF]
    EUR-CHF has declined for a third straight session, making an eight-day low of 1.1712. This extends the correction from the 37-month high that was seen on Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with 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.

    [USD, CAD]
    USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike this week met expectations, and was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

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