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By XE Market Analysis October 12, 2017 6:57 am
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    XE Market Analysis: North America - Oct 12, 2017

    The dollar posted fresh lows versus the euro and a good many other currencies before settling and coming off those lows. The narrow trade-weighted USD index has seen a low of 92.64, which is the lowest level seen since September 26. Markets were continuing to digest the minutes to the September FOMC meeting, which, while overall maintaining expectations for a 25 bp hike in the funds rate, weakened the conviction for this a tad, with some policymakers expressing concern that low inflation was not "transitory." EUR-USD lifted for a fifth consecutive session, logging a 17-day peak of 1.1880, subsequently settling around 118.50. USD-JPY settled in the mid 112s, remaining above the 112.08 low clocked yesterday.

    [EUR, USD]
    EUR-USD lifted for a fifth consecutive session, logging a 17-day peak of 1.1880, subsequently drifting back to around 1.1850. The release of the FOMC minutes to the September meeting weakened the conviction of there being another 25 bp hike in the Fed funds rate in December, which served to refuel the upside bias in EUR-USD. This comes with the Catalan independence movement becoming less of a worry-point for financial markets amid signs that Barcelona is cracking as Madrid takes a hard-line stance on the would-be secessionists (threatening to take away Catalonia's status as an autonomous region). EUR-USD has near-term trend support at 1.1843-45, and resistance at 1.1898-1.1900.

    [USD, JPY]
    USD-JPY settled in the mid 112s, remaining above the 112.08 low clocked yesterday, see amid the latest bout of threatening hyperbole from North Korea (promising the U.S. a "hail or fire"). USD-JPY's week's low was seen on Tuesday, at 111.99. While the relatively dovish stance of the BoJ versus the Fed has been keeping the pair bid on dips, geopolitical tensions are serving to curtail the upside. The one-month bullish phase, rooted at the early-September low at 107.31, has been flagging. Momentum indicators, such as the 14-day RSI, have been in 'bearish divergence', where new highs in the underlying market are seen but at the same time as trend momentum declines. USD-JPY support is at 111.88.

    [GBP, USD]
    Cable drifted back to the low 1.32s after logging a one-week high of 1.3265 amid a broadly softer dollar. The up move extended the recovery from last Friday's one-month low at 1.3027, which was the culmination of the biggest weekly decline since August 2016. Aside from the weaker dollar, helping foster the turn higher was the ONS stats office disclosing of an error that caused an underestimation of companies' costs data, which has given the BoE rate hike case a boost. Incoming UK data have been mixed, however, with above-forecast production data being offset by a worse than expected blowout in the trade deficit, and with headline strength in the BRC retail survey for September being offset by the fact that the data was largely pushed up by higher prices. Brexit concerns remain sharply in focus, with both Chancellor Hammond and PM May having yesterday noted the possibility of a no-deal exit from the EU. We still prefer selling Cable into strength.

    [USD, CHF]
    The Swiss franc came under particular pressure, falling against the euro, despite a concurrent broader softening in the common currency, and versus the dollar and other currencies. EUR-CHF logged a 17-day high at 1.1557, making this the fifth successive higher high. USD-CHF has lifted from a 0.9712 low toward 0.9750. The de-escalation in tensions between Madrid and Catalonian would-be secessionist is a backdrop factor in the lower franc, which has been on a softening path for over two months now as the Eurozone shows signs of coming out of the woods, both politically and economically, following a long aftermath to the financial crisis. Former EUR-CHF resistance at 1.1488-90 and 1.1500 now revert as supports.

    [USD, CAD]
    USD-CAD posted a new correction low of 1.2432, extending the pullback from Friday's six-week peak at 1.2600. The move has been driven by broader softness in the U.S. dollar, which is been persisting since the open of trading on Monday and given fresh legs by the FOMC minutes, which weakened the conviction of market expectations for a December rate hike. The Canadian dollar, meanwhile, is likely to remain on a neutral-to-softer bias, in place since BoC Governor Poloz unexpectedly threw cold water on market expectations for further rate hikes in saying that the central bank was not on a predetermined path.

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