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By XE Market Analysis October 16, 2017 7:03 am
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    XE Market Analysis: North America - Oct 16, 2017

    The dollar traded mixed, posting gains versus a generally softer euro, and against the Canadian and other dollar bloc currencies, but traded slightly lower versus the yen and sterling. The euro came under broader pressure, although managed to lift out of its lows. EUR-USD posted a four-session low at 1.1780, and EUR-JPY logged a one-month low at 131.66. The common currency also saw new lows versus the pound and Swiss franc, among other currencies. USD-JPY was settled below 112.00, lacking strong directional impulse. Market participants will be looking to further refine their Fed policy expectations in light of the CPI miss out of the U.S, which may see the dollar meeting selling pressure on gains.

    [EUR, USD]
    The euro came under broader pressure today, though managed to lift out of its lows. EUR-USD posted a four-session low at 1.1780, and EUR-JPY logged a one-month low at 131.66. The common currency also saw new lows versus the pound and Swiss franc, among other currencies. Markets are be still digesting a Bloomberg report from Friday that the ECB is considering halving asset purchases next year, but with a longer than hitherto expected nine-month extension to the program. In the bigger view, with Fed tightening expectations having been cooled by soft U.S. CPI data, which played to concerns among some policymakers about chronic low inflation, EUR-USD remains without a pronounced directional bias. We expect a broader trading band, defined roughly by 1.1500 and 1.2000, will persist for now.

    [USD, JPY]
    USD-JPY has been settled near 112.0 so far in early-week trading, lacking directional impulse. Last week the pair posted it first down week after four consecutive rally weeks. We had been warning that momentum of the rally seen from early September had been waning, with momentum indicators showing 'bearish divergence' relative to spot. Near-term trend projections point to 111.10, Resistance is at 112.00-07.

    [GBP, USD]
    The pound has opened the week with little directional bias after rallying last week by a BBC report that the EU may prepare for talks about a transitory period and future trading terms. The article cites from a draft paper written by European Council president Tusk, and follows the end of the fifth round of negotiations 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). Meanwhile, there appears to be plot to oust UK Chancellor Hammond, who favours a softer version of Brexit, and there is speculation that PM May, herself not looking to be in a strong position, will reshuffle her cabinet. The UK is still not out of the Brexit woods, as the EU document also makes clear that the 27 members is expecting more concessions from the British government on divorcing terms.

    [USD, CHF]
    EUR-CHF has ebbed back toward 1.1500 after last week capping out a near two-week rally phase at 1.1566, which was the loftiest level seen since September 25. An abatement in the standoff between Catalan would-be secessionists with Madrid as a worry-point for markets had 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 last Thursday posting a new correction low of 1.2432, which extended the pullback from the recent seven-week peak at 1.2600. The move was driven by broader softness in the U.S. dollar, with the combined impact of the FOMC minutes from the September meeting and sub-forecast U.S. CPI data last week, weakening the conviction of market expectations for a December rate hike. The Canadian dollar, meanwhile, is likely to retain 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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