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By XE Market Analysis October 18, 2017 7:36 am
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    XE Market Analysis: North America - Oct 18, 2017

    The dollar continued to firm. USD-JPY rallied for a third successive session, making a nine-day at 112.76, and EUR-USD declined for a fourth consecutive session, logging a nine-day low at 1.1730. While losing ground the dollar, the euro managed gains versus the yen, sterling and other currencies. Madrid's clampdown on Catalonia's independence movement appears, at least for now, and at least from the perspective of participants in forex markets, to have mollified concerns of political instability in Spain, though there is a risk that the heavy-handed response will only intensify the secessionist movement. Markets are also alert to the Trump administration's upcoming decision on who will lead the Fed over the next term, with the five candidates ranging from the dovish Yellen, the present chair of the central bank, to the decidedly hawkish Taylor. An above-forecast wage headline sparked a brief pop in the pound in the immediate wake of the data release, though this was quickly unwound, and the pound has settled back to net unchanged levels versus the dollar near 1.3175. The UK's stats office highlighted that inflation-adjusted household incomes are down 0.4% from a year ago in the ex-bonus measure.

    [EUR, USD]
    EUR-USD declined for a fourth consecutive session, this time logging a nine-day low at 1.1730. Broader dollar firmness drove the move, with the euro itself managing gains today versus the yen, sterling and other currencies. Madrid's clampdown on Catalonia's independence movement appears, at least for now, and at least from the perspective of participants in forex markets, to have mollified concerns of political instability in Spain, though there is a risk that the heavy-handed response will only intensify the secessionist movement. Markets are also alert to the Trump administration's upcoming decision on who will lead the Fed over the next term, with the five candidates ranging from the dovish Yellen, the present chair of the central bank, to the decidedly hawkish Taylor. Trump is expected to announce his choice by November 3. Incoming U.S. data has been, and we expect will continue, to maintain expectations for a 25 bp hike in the funds rate in December alive, although there remains little signs as yet that the diminishing slack in the labour market is translating to high price pressures. We favour following EUR-USD's nascent down trend. Trend resistance is at 1.1793-95, and support is at 1.1720-21.

    [USD, JPY]
    USD-JPY is up for a third successive session, making a nine-day at 112.76. A combo of broader dollar softness and broad yen firmness has driven the move. The yen has been weakening versus the euro and Australian dollar, among other currencies, reflecting the buoyancy in global stock markets. USD-JPY's price action over the last couple of sessions puts in a stop in the downward drift that had been seen for over a week after the pair capped out at a one-month rally at 113.44. We anticipate gains on the assumption that geopolitical tensions don't flare and cause a yen-supportive risk-off trade in global markets. Former highs and resistance at 112.39-40 and 112.48 now mark support.

    [GBP, USD]
    An above-forecast wage headline sparked a brief pop in the pound in the immediate wake of the data release, though this was quickly unwound, and the pound has settled back to net unchanged levels. The ONS stats office highlighted that inflation-adjusted household incomes are down 0.4% from a year ago in the ex-bonus measure. Employment growth still remained strong, however, and job vacancies were up 3k in Q2 at a near record level 783k. The evident weakness in wage bargaining power despite strong employment levels has been something of a mystery, though plausible reasons include the evolution of the gig economy and competition to labour from automation. With the Brexiting process starting to look messy, with consequential impact on business investment, and with the political scene in Westminster looking shaky, we retain a big picture bearish view of the pound, seeing scope for a new sub-1.3000 range developing in the weeks ahead.

    [USD, CHF]
    EUR-CHF has settled back around the 1.1500 level after last week capping out a near two-week rally phase at 1.1566, which was the loftiest level seen since September 25. Former EUR-CHF resistance at 1.1488-90 has been acting as a support. We have been anticipating an eventual return to 1.2000, which is the former trading floor of the SNB's, though this assumes that political tensions (Catalonia in particular) don't worsen, as the franc tends to find demand in the face of news developments that are threating to the political integrity of the Eurozone.

    [USD, CAD]
    USD-CAD spiked to a 12-day high of 1.2591 on a report that Canada and Mexico were set to reject NAFTA reform proposals. The pair subsequently ebbed back to the low 1.25s. We expect the bias will remain to the upside, with the Fed still seen on track to hike the Fed funds rate by 25 bp in December, and with BoC policymakers having actively dispelled any notion that it is on a committed tightening path. The BoC's quarterly business survey, released earlier in the week, showed economic activity to be remaining robust in a state of moderation following a strong performance over the summer period. USD-CAD has support at 1.2456-60.

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