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By XE Market Analysis September 12, 2017 7:25 am
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    XE Market Analysis: North America - Sep 12, 2017

    The dollar carved out new rebound highs versus the yen and euro, among some other currencies, though traded lower in some cases, most notably the pound, which rallied strongly following perkier than expected UK inflation data. USD-JPY continued to gain as markets react to a sense of reduced risks stemming from North Korea and Hurricane Irma, with the former having refrained (for now) from further missile testing and the latter now having weakened to a tropical storm rating while tentatively proving to be less damaging than feared to the U.S. mainland. USD-JPY logged a one-week high at 109.85, which is over two big figures up on Friday's low at 107.31. EUR-USD clocked a three-session low at 1.1945. Sterling, meanwhile, rallied strongly on perky UK inflation data. Cable surged by over 1% in making a one-year high 1.3282 while EUR-GBP dove into six-week low territory near 0.9000. UK headline CPI spiked to 2.9% y/y, up on July's 2.6% y/y rate, matching the cycle high seen in May and beating the median for 2.8% y/y.

    [EUR, USD]
    EUR-USD clocked a three-session low at 1.1945 as the dollar continued to rebound from its pre-weekend selloff. Less damaging than feared hurricane damage in Florida and a refrain from fresh sabre-rattling antics by North Korea have driven the rebound, though we advise caution given the likely continuation of Pyongyang's nuclear ICBM ambitions. EUR-USD support is at 1.1887-90.

    [USD, JPY]
    USD-JPY continued to rise as markets react to a sense of reduced risks stemming from North Korea and Hurricane Irma, with the former having refrained from further missile testing and the latter now having weakened to a tropical storm rating while tentatively proving to be less damaging than feared to the U.S. mainland. USD-JPY logged a one-week high at 109.85, which is well over two big figures up on Friday's low at 107.31. With a good chunk of the pre-weekend risk-off positioning having been reversed, and with the likelihood of further sabre-rattling antics from North Korea as the rogue nation draws nearer to nuclear ICBM capability, we don't recommend following USD-JPY higher, and instead advise on expecting a resumption of the downward trend.

    [GBP, USD]
    Sterling rallied strongly on perky UK inflation data. Cable surged by over 1% in making a one-year high 1.3282 while EUR-GBP dove into six-week low territory near 0.9000. UK headline CPI spiked to 2.9% y/y, up on July's 2.6% y/y rate, matching the cycle high seen in May and beating the median for 2.8% y/y. The view on the street is that the spike in the data will shift the argument at the BoE towards the hawkish side, especially in terms of removing the "emergency cut" of August last year, which was made in the wake of the Brexit vote and took the repo rate to a record low 0.25%. We're not so sure, as the impact of post-Brexit currency weakness in buoying prices will like start to wane in the months ahead. The data will increase the attention on the BoE's MPC meeting this week, specifically the minutes given the consensus remains for an unchanged decision.

    [USD, CHF]
    EUR-CHF has lifted to three-session highs near 1.1450 amid the reversal out of risk-off positioning that's been in play since the weekend. This has continued a choppy phase in EUR-CHF trading, although 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 drifted to a three-session low under 1.2100, returning focus to Friday's 28-month low at 1.2062. We expect the pair's downtrend, which has been in place since May, will resume. The Canadian employment report last Friday was supportive of the BoC's path to normalize 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.

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