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By XE Market Analysis July 14, 2017 6:50 am
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    XE Market Analysis: North America - Jul 14, 2017

    EUR-USD settled near the 1.1400 level, up on yesterday's 1.1370 low but remaining comfortably off the 14-month peak logged earlier in the week at 1.1489. The yen weakened during the first half of the Tokyo session before clawing back losses. USD-JPY logged a peak of 113.56, up from yesterday's 112.86 low, before ebbing back to around 113.20. EUR-JPY saw a similar price action, while AUD-JPY carved out a new five-month peak at 87.93. The AUD-JPY cross, widely seen as a proxy of the China economy and broadly global risk appetite, has been rallying quiet strongly over the last week, and was particularly buoyed in the wake of Fed Yellen's dovish-leaving guidance during her Congressional testimonies and by strong Chinese export data. Sterling has remained underpinned, and is looking set to finish the week with moderate gains (which stood at average 0.3% versus the G3 currencies as of the late AM session in London). USD-CAD continued to ply a narrow range in the lower-to-mid 1.27s, consolidating after dropping sharply following Wednesday's BoC rate hike.

    [EUR, USD]
    EUR-USD settled near the 1.1400 level, up on yesterday's 1.1370 low but remaining comfortably off the 14-month peak logged earlier in the week at 1.1489, despite news that ECB President Draghi will be speaking at this year's Jackson Hole Symposium (August 24th-25th), which has invited speculation that he would use this venue to make a long-awaited announcement on policy tapering. Draghi had formerly used the same venue to prepare markets for quantitative easing. We advise caution with regard to EUR-USD, with a notable divergence appearing between trend momentum indicators and price action (with the 14-day RSI, for instance, declining over the last week despite the pair logging fresh highs). We the ECB moving cautiously toward tapering, and the Fed guidance emphasizing a slow-go path to further tightening, directional leads have weakened for EUR-USD. Resistance is at 1.1427-30, support is at 1.1340.

    [USD, JPY]
    The yen weakened during the first half of the Tokyo session before clawing back losses. USD-JPY logged a peak of 113.56, up from yesterday's 112.86 low, before ebbing back to around 113.20. EUR-JPY saw a similar price action, while AUD-JPY carved out a new five-month peak at 87.93. The AUD-JPY cross, widely seen as a proxy of the China economy and broadly global risk appetite, has been rallying quiet strongly over the last week, and was particularly buoyed in the wake of Fed Yellen's dovish-leaving guidance during her Congressional testimonies and by strong Chinese export data. We have been advocating a bullish view of USD-JPY, based on the Fed's gradualist tightening path, giving the dollar a yield advantage while maintaining a risk-on backdrop in global equity markets.

    [GBP, USD]
    Sterling has remained underpinned, and is looking set to finish the week with moderate gains (which stood at average 0.3% versus the G3 currencies as of the late AM session in London). Data this week showing a sharp rise in foreign visitors to the UK and an unexpected dip in the jobless rate to a 43-year low of 4.5% have helped give the pound some respite after a period of underperformance. BoE MPC member McCafferty, a long-term hawkish, also argued that the central bank needs to consider unwinding the QE program, though his colleague Broadbent said he was no ready to hike rates, and talked at length during a speech about the risks that a "bad" Brexit would have on UK costs and income. Cable logged a five-session peak at 1.2969. We don't recommend following the trend. The June RICS UK house price measure, released yesterday, 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 data from May and June 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 on Wednesday following yesterday's BoC rate hike. While markets were mostly braced for a hike, they were not fully anticipating a move as soon as this week. The low is the culmination of a two-month bear phase, over which time the Canadian economy has showed consistent signs of improvement while BoC policymakers have been expressing the view that the drag from the oil-related shock in recent years has now passed. 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 today is likely to show inflation dipping to 1.5% from 1.9%.

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