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By XE Market Analysis October 19, 2017 7:38 am
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    XE Market Analysis: North America - Oct 19, 2017

    The dollar came under pressure against most currencies. EUR-USD rallied to a three-day high of 1.1836 and USD-JPY turned sharply lower in London trading after logging a two-week high at 113.14, dropping under 112.50. The drop in USD-JPY reflected in part a bout of demand for the yen as European stock markets turned south, despite the fresh record highs on Wall Street yesterday. Today is a crunch day in Spain, with Madrid set to take away Catalonia's autonomy, which, along with fresh signs that EU leaders will refuse to open trade talks with the UK until December, have caused a souring in sentiment. Elsewehre, sterling came under the cosh following a sizable UK retail sales miss, while NZD-USD dove by over 1% ahead of an announcement following post-election coalition negotiations.

    [EUR, USD]
    EUR-USD rallied to a three-day high of 1.1836, though EUR-JPY came under pressure after posting a four-week high. Today is a crunch day in Spain, with Madrid set to take away Catalonia's autonomy. With regard to EUR-USD, markets 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 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 keep 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. Former trend resistance at 1.1785-87 now reverts as a support.

    [USD, JPY]
    USD-JPY turned sharply lower in London trading after logging a two-week high at 113.14, dropping under 112.50. EUR-JPY and other yen crosses saw a similar price action, reflecting a bout of demand for the yen as European stock markets turned south, despite the fresh record highs on Wall Street yesterday. Today is a crunch day in Spain, with Madrid set to take away Catalonia's autonomy, which, along with fresh signs that EU leaders will refuse to open trade talks with the UK until December, have caused a souring in sentiment.

    [GBP, USD]
    Sterling to a knock follow a sub-forecast UK retail sales data and with a group of hardline Brexiteers in the ruling Tory party haven written to PM May exacting that the government should walk away from negotiations if the EU continues to refuse to talk about trade. Cable logged a five-session low at 1.3120 and EUR-GBP scaled to a five-session high of 0.8989. UK retail sales for September underwhelmed, contracting by 0.8% m/m, well off the median forecast for a modest 0.1% decline. The August figure was revised down to 0.9% m/m growth from 1.0%. The y/y comparison came in with 1.2% growth after 2.3% y/y in August, and was much weaker than the median forecast for 2.1%. Core sales, ex fuel, showed similar weakness, declining 0.7% m/m versus the median for -0.2%.

    [USD, CHF]
    EUR-CHF lifted to a one-month high of 1.1585. Former EUR-CHF resistance at 1.1488-90 proved a good support earlier in the week. 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 amid news developments that might be threating to the political integrity of the Eurozone.

    [USD, CAD]
    USD-CAD is down for a second day, making a one-week low of 1.2451. We expect the overall 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 1.2432.

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