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By XE Market Analysis October 13, 2017 6:58 am
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    XE Market Analysis: North America - Oct 13, 2017

    EUR-USD lifted to the 1.1850 area on a Bloomberg report that the ECB is considering halving asset purchases next year, although with a longer than hitherto expected nine-month extension to the program, which has had an offsetting influence on forex markets. Attention today will be on U.S. CPI data, as benign data would fit concerns among some Fed policymakers that low inflation is not a transitory phenomenon. We expect U.S. headline CPI to lift to 0.6% m/m (median same) from 0.4% m/m, driven by the rise in petroleum prices, but see core CPI remaining at a benign 0.2% m/m. USD-JPY ebbed to a 16-day low at 111.86, partly on a generally soft dollar and partly on a generally firmer yen. Most yen crosses were lower, although there were exceptions, such as AUD-JPY. It has become a regular event for the yen to firm up into weekend's amid the threat of further missile tests from North Korea. The pound outperformed, with Cable making an 11-day high at 1.3324, on a BBC report that the EU may be preparing for talks about a transitory period and future trading terms.

    [EUR, USD]
    EUR-USD lifted to the 1.1850 area on a Bloomberg report that the ECB is considering halving asset purchases next year, although with a longer than hitherto expected nine-month extension to the program, which has had an offsetting influence on forex markets. Attention today will be on U.S. CPI data, as benign data would fit concerns among some Fed policymakers that low inflation is not a transitory phenomenon. We expect U.S. headline CPI to lift to 0.6% m/m (median same) from 0.4% m/m, driven by the rise in petroleum prices, but see core CPI remaining at a benign 0.2% m/m. Other U.S. data, particularly retail sales, is likely to come in on the strong side. Overall, EUR-USD remains without a pronounced directional bias, as expect a broader trading band, defined roughly by 1.1500 and 1.2000, will persist.

    [USD, JPY]
    USD-JPY ebbed to a 16-day low at 111.86, partly on a generally soft dollar and partly on a generally firmer yen. Most yen crosses were lower, although there were exceptions, such as AUD-JPY. It has become a regular event for the yen to firm up into weekend's amid the threat of further missile tests from North Korea. Some focus is also on U.S. CPI data today, as benign data would fit concerns among some Fed policymakers that low inflation is not a transitory phenomenon.

    [GBP, USD]
    The pound has been lifted by Brexit related news, specifically a BBC report that the EU may prepare for talks about a transitory period and future trading terms. The Queen's currency is showing a 0.4% gain versus the dollar, and a 0.3% advance on the euro. The BBC's article cites from a draft paper written by European Council president Tusk, and follows the end of the fifth round of negotiations ending yesterday in "deadlock," as the EU's chief Brexit negotiator Barnier put it, although he also suggested that the EU is open for a transitory period (which would buy more time after actual Brexit in March 2019). Cable logged an 11-day high at 1.3324, and EUR-GBP fell to an eight-day low at 0.8876. The UK is still not out of the woods, as the document also makes clear that the EU is expecting more concessions from the British government on divorcing terms.

    [USD, CHF]
    EUR-CHF is down today after five straight sessions of gains, which yesterday left an 18-day high at 1.1566. The franc has also been seeing weakness against the dollar and yen, among other currencies. An abatement in the standoff between Catalan would-be secessionists with Madrid as a worry-point for markets has elicited franc selling, which since July has been tending to trade softer on any signs that suggests risks to the political integrity of the Eurozone are abating. Former EUR-CHF resistance at 1.1488-90 and 1.1500 now revert as supports. We have been anticipating an eventual return to 1.2000, which is the former trading floor of the SNB's.

    [USD, CAD]
    USD-CAD has found a footing after yesterday posting a new correction low of 1.2432, which extended the pullback from last Friday's six-week peak at 1.2600. The move was driven by broader softness in the U.S. dollar, which was a feature since the open of trading on Monday, given fresh legs by Wednesday's release of the FOMC minutes from the September meeting, 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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