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By XE Market Analysis September 25, 2017 7:23 am
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    XE Market Analysis: North America - Sep 25, 2017

    The euro has come under across-the-board pressure following the German election result, which has left Merkel in place as Chancellor but in a weakened position, heralding a lengthy period of coalition-building talks. The September German Ifo business confidence survey also underwhelmed. EUR-USD dove over 0.6% in logging a three-session low at 1.1881. EUR-JPY and other euro crosses also took a hit, but the dollar pairing bore the brunt with the buck itself a more attractive proposition following the hawkish guidance from the Fed last week. USD-JPY settled near 112.00 after posting highs just above 112.50 during Tokyo trading, reportedly on relief that North Korea hadn't launched any more missiles over the weekend, and with BoJ recommitment to ultra-accommodative monetary policy last week continuing to reverberate.

    [EUR, USD]
    EUR-USD logged a three-session low at 1.1881, which is about a 0.6% loss from Friday's New York closing levels. The prospect of lengthen coalition haggling among German political parties following Sunday's election, along with a sub-forecast outcome of the German Ifo business confidence reading for September, have made the euro a sell in forex markets today. Euro crosses are down in addition to EUR-USD, though the dollar pairing is taking the brunt of selling, with the buck having become a more attractive proposition following last week's hawkish Fed guidance. EUR-USD has near-term resistance at 1.1900-05, and support at 1.1860-61 (which encompasses last week's low).

    [USD, JPY]
    USD-JPY logged a two-session just above 112.50 in Tokyo, with North Korea refraining any fresh missile tests, before ebbing back to around 112.00. The BoJ's reaffirmation at last week's policy meeting of its commitment to yield curve control and ultra-accommodative monetary policy in general was an effective endorsement for yen bears. Caution is advised, however, given Pyongyang's advance to becoming a nuclear power remains a wildcard risk, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. USD-JPY has trend support at 111.90-91.

    [GBP, USD]
    Sterling have early gains after the currency briefly become the chief beneficiary of euro weakness following the German election result. We have been recommending a sell-on-strength tactic. Brext concerns remain, and Moody's downgraded its UK sovereign rating by one level to Aa2 (announcing after UK markets closed on Friday). The follow's a keynote speech by Prime Minister May on Friday, where she signalled that the government is aiming for a hard exit form the EU, rejecting the Norwegian and Canadian models while admitting that she is not pretending that you can have all the advantages of the single market with none of the disadvantages. Cable support is at 1.3480-81, and resistance is at 1.3587-90.

    [USD, CHF]
    EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

    [USD, CAD]
    USD-CAD has settled in the lower 1.23s after bolting to a two-week high of 1.2391 last Wednesday, following the Fed's hawkish guidance, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up for now. This comes amid signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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