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By XE Market Analysis January 22, 2018 7:43 am
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    XE Market Analysis: North America - Jan 22, 2018

    The dollar dipped at the open of Asia-Pacific dealings on concerns about the government shutdown in the U.S, but subsequently recovered losses. EUR-USD popped about 50 pips high, logged a peak at 1.2274 before ebbing back to near net unchanged levels around 1.2225. USD-JPY'S low was 110.52 before the pair lifted to an intraday peak at 110.91. The U.S. Senate will vote on government funding at noon in Washington DC today after negotiations by a bipartisan group of senators failed to produce a breakthrough on Sunday. News that Germany is on course to have a new grand coalition has also been in the mix, though gains the euro saw in early trade have unwound, providing fresh signs that sentiment toward the common currency has soured somewhat with the strength of the euro starting to be seen as having a potential impact on ECB policy.

    [EUR, USD]
    EUR-USD has remained buoyant during into the European afternoon session. The pair has re-established itself above 1.2250, though has remained below the high that was seen in opening dealings in Asia-Pacific, which is at 1.2274. The Bundesbank's monthly report said that the German economy has continued to expand at high speed while advocating that price pressures will build this year. News that Germany is on course to have a new grand coalition has also been in the mix is a euro positive, though directional ambition is being crimped ahead of the U.S. Senate vote on government funding, which will take place a noon in Washington DC (17:00 GMT), as the impact on the outcome will likely be a binary buy dollars or sell dollars. EUR-USD has support at 1.2182-84. Last Tuesday's 37-month high is at 1.2323 remains in the scopes.

    [USD, JPY]
    USD-JPY ebbed back toward 110.70 after earlier capping out a 110.91, which is the intraday high seen after an early-Tokyo rally from 110.52. Yen market participants are focusing in on tomorrow's BoJ policy meeting. We expect no change in rates or the policy stance, despite the minor tweak to bond purchases made on January 9 when the Bank trimmed its purchases of longer dated JGBs. That was a technical operation and part of its yield curve management strategy. The markets may have gotten ahead of the BoJ's timeline in terms of discussing normalization. Kuroda is likely to underscore gradualism, which would be consistent with other central banks reassuring that gradual is the watchword this year. Japanese inflation data December is up on Frida, where the national CPI should show the overall index rising to a 1.0% y/y pace from 0.6% previously, with the core reading at 1.0% y/y, from 0.9%. USD-JPY has support at 110.48-50.

    [GBP, USD]
    Cable has come off the boil since logging a new post-Brexit vote high of 1.3945 on Friday. Hefty sell-stops were reportedly triggered in GBP-JPY through 153.70. UK retail sales disappointed in official December data, released Friday, dropping 1.5% m/m, more than the 0.6% m/m decline anticipated by the median forecast. The y/y figure came in with 1.4% growth, well off the median forecast for 2.6% growth. The UK calendar this week brings monthly government borrowing data (Tuesday), the January CBI surveys on industrial trends and distributive sales (due Tuesday and Friday, respectively), the monthly labour market report (Wednesday), and the second estimate for Q4 GDP (Friday). Focus will also fall on negotiations between the EU and UK on a transitory Brexit period. The BoE MPC next meets on February 7th-8th. Cable has support at 1.3845-48, and resistance at 1.3945.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last 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 last week met expectations, but 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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