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By XE Market Analysis September 11, 2017 7:23 am
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    XE Market Analysis: North America - Sep 11, 2017

    The dollar was bid and safe haven currencies have been offered, reportedly on relief that North Korea didn't conduct another missile test over the weekend (which had been widely feared on Friday). USD-JPY rallied over 0.5% in recouping about a half of the losses seen on Thursday and Friday last week. An intraday peak was clocked at 108.61. EUR-USD clocked a 1.1993 low during the early phase of the London session. The low was seen in the wake of remarks by ECB's Coeure, who said that persistent euro strength would bring "undesirable consequences" for the inflation outlook, though follow-through euro selling proved to be limited as his remarks didn't add much to the guidance already installed by the central bank's post-policy meeting announcement and press conference last week. In settling back around 1.2025, the euro is back to near net unchanged levels on the day. We don't expect dollar buying to sustain, seeing it will be more offered than bid in the days ahead as markets assess the economic damage being wrought by Hurricane Irma. There is also a high probability of continued sabre rattling by North Korea as it draws nearer to a achieving a credible nuclear ICBM threat.

    [EUR, USD]
    EUR-USD has been restored back above 1.2000 after clocking a 1.1993 low during the early phase of the London session. The low was seen in the wake of remarks by ECB's Coeure, who said that persistent euro strength would bring "undesirable consequences" for the inflation outlook, though follow-through euro selling proved to be limited as his remarks didn't add much to the guidance already installed by the central bank's post-policy meeting announcement and press conference last week. In settling back around 1.2025, the euro is back to near net unchanged levels on the day. We expect EUR-USD to remain broadly underpinned, with the dollar likely to be more offered than bid as markets assess the economic damage being wrought by Hurricane Irma. Support is at 1.1993-98.

    [USD, JPY]
    USD-JPY rallied over 0.5% in recouping about a half of the losses seen on Thursday and Friday last week. An intraday peak was clocked at 108.61. Relief that North Korea refrained from conducting a further missile test over the weekend (which had been widely feared heading into the weekend) lifted USD-JPY, a pair which had been shorted before weekend as a safe-haven tactic. Given the fallout from Hurricane Irma and likely continuation of sabre rattling from North Korea, we advise caution, seeing risk of fresh dollar selling. Initial resistance in USD-JPY is at 108.70.

    [GBP, USD]
    Sterling has continued to trade mixed, this time losing some ground to the dollar while gaining versus the euro and yen. Cable has rallied quite strongly over the last couple of weeks, but has during the same phase traded at eight-year lows versus the euro. We continued to advise caution with regard to medium- to longer-term outlooks with regard to the pound given the uncertainties about the Brexit process and evident stagnation that's already been seen in the UK economy. Cable has support is at 1.3092-93.

    [USD, CHF]
    EUR-CHF has seen some choppy price action in recent sessions, but the net takeaway is that the cross has been continuing to orbit the 1.1400 level, which has been the case for about a month now. Safe haven demand for the Swiss franc has ebbed and flowed over this period. SNB boss, Jordan, signalled last week that the central bank remains fully committed to its ultra-accommodative monetary policy settings, saying that he and his colleagues did not know if recent franc weakness, which is desirable from their perspective, would sustain. In the scenario that geopolitical tensions ebb back, we would by bullish of EUR-CHF. Assuming the Eurozone economic revival remains on track, which would help quell ECB angst about euro strength, and assuming the ECB commits to QE policy tapering at some point over the next month or two, we would expect the EUR-CHF to eventually recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD has settled higher after logging a 28-month low at 1.2062 on Friday. The pair ticked higher initially following an as-expected Canadian August jobs report, though the rise in part-time jobs at the expense of full-time positions prompted some buying of USD-CAD. Subsequent to this, in early-week trading today, a broader rebound in the U.S. dollar has taken hold, extending the recovery high to 1.2162. The Canadian employment report will still support the BoC's path to further rate hikes as it pushes for normalization in monetary policy. The BoC hike of last Wednesday was the second tightening of the cycle, following the quarter point hike of July, and came earlier that markets had been anticipating. Policymakers justified the tightening on strong growth, which has been broadening and becoming increasingly self-sustaining. The BoC has been viewing the Canadian economy as having escaped the drag from the downside oil price shock of recent years. We expect further downside in USD-CAD.

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