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By XE Market Analysis July 13, 2017 7:48 am
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    XE Market Analysis: North America - Jul 13, 2017

    The dollar continued on a mostly softer track, losing ground to the yen, sterling, and Australian and New Zealand dollars, while gaining versus the euro and, to a less magnitude, the Canadian dollar. EUR-JPY and other crosses remained the biggest movers on the exchange rate grid of major currencies. The euro has been rallying quite strongly from early April, and what we're seeing now is a correction in that trend. EUR-USD and EUR-JPY both logged five-session lows, at 1.1376 and 128.49, respectively. While the yen gained ground versus the dollar and euro, it notably lost ground versus the Australian dollar. AUD-JPY, a cross which correlates fairly closely with swings in global investor risk appetite, logged a five-month high at 87.47. Stocks in both Asia and Europe rallied today, aided by data. Chinese trade data beat forecasts, including a 17.2% rise in imports, a positive for the Aussie and Asian equity markets. Both Bank Negara and the Bank of Korea also issued upbeat economic prognoses of their respective economies following unchanged policy decisions.

    [EUR, USD]
    EUR-USD is down for a second day, logging a low of 1.1385, surpassing yesterday's low by 6 pips. The dollar had been trading softer but picked up bids as the European AM session progressed. We have been advising EUR-USD bulls to tread with caution as there is some speculation, not unreasonable we think, that Yellen will during the second part of her testimony before the Senate today guide markets back from an overly dovish interpretation of the message she gave during her House testimony yesterday. EUR-USD resistance is at 1.1467-70, head of the 1.1489 trend high. Support is at 1.1385-92 (tested earlier), ahead of 1.1366-67. A downside break would swing the Jul5-5 low back into the picture.

    [USD, JPY]
    USD-JPY drifted back under 113.00 after a run higher in Tokyo AM session met a wave of selling at the Tokyo fix. A high had been left at 113.53, and the subsequent low was logged at 112.86, which is the lowest level seen since last Friday. A revived risk-on backdrop, with equity markets taking Fed Yellen's testimony before the House of Reps well, has been feeding some demand-on-dips for USD-JPY. While we have been advocating a bullish view of USD-JPY, this assumes that the Fed to remains on a gradualist tightening path, one which global stock markets can easily digest. Close attention should be given to Yellen's second testimony, this time before the Senate, as there is a risk she has decided that markets took her remarks yesterday as being too dovish.

    [GBP, USD]
    Sterling has is up against both the dollar and euro for a second day. Data showing a sharp rise in foreign visitors to the UK added to data yesterday showing an unexpected dip in the jobless rate to a 43-year low of 4.5%. This has given the pound some respite after a period of underperformance, which saw Cable trade at two-week lows and EUR-GBP in eight-month high terrain. Cable logged a six-day peak at 1.2952. Today's data weren't all good, however. The June RICS UK house price measure dove to a +7% balance from +17%, posting its weakest reading since the immediate wake of the Brexit vote last year, with respondents reporting political uncertainty and perceived Brexit risks as weighing on activity. This follows other data pointing to a slackening housing market, along with misses in production data, and sub-forecast June PMI survey outcomes. We recommend selling into sterling gains, anticipating a prolonged period of underperformance as PM May's weak minority government navigates negotiations with the EU. Resistance in cable is marked by recent daily highs at 1.2974 and 1.2984.

    [USD, CHF]
    EUR-CHF has corrected to the low 1.10s after logging a 10-month high at 1.1061 on Tuesday. The cross remains about 1.5% up on levels prevailing in late June, having gained amid a broader bid in the euro following a batch of signals from ECB policymakers that have collectively affirmed that policy tapering is on the table. The policy shift will be welcome by Swiss policymakers after Switzerland's inflation dipped to just 0.2% y/y in June data, down from 0.5% in May and threatening a return of deflation. The price data would have rekindled the SNB's desire for a weaker franc, having stressed at its June policy review that the currency remains "significantly" overvalued.

    [USD, CAD]
    USD-CAD is pausing for breath in the mid 1.27s after diving sharply to a 13-month low at 1.2680 yesterday following yesterday's BoC rate hike. While markets were mostly braced for a hike, but not fully for a move as soon as yesterday. The low yesterday is the culmination of a two-month bear phase, over which time the Canadian economy has showed consistent signs of improvement while BoE policymakers have been expressing the view that the drag from the oil-related shock in recent years has now passed. The BoC yesterday placed emphasis on incoming data with regard to future policy decisions. This, along with a near 1% drop back in oil prices today, will weaken an impetus there might have been to chase the Canadian dollar higher. We take a neutral view of USD-CAD for now. The Canadian calendar is pretty much empty until next week, while U.S. CPI data tomorrow is likely to show inflation dipping to 1.5% from 1.9%.

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