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By XE Market Analysis September 26, 2017 6:55 am
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    XE Market Analysis: North America - Sep 26, 2017

    The dollar has been in rally mode today, especially against the euro and kiwi dollar, currencies that have both been left reeling following weekend election results in Germany and New Zealand, respectively. EUR-USD dove to a one-month low of 1.1793. EUR-JPY and other euro crosses also came off, though the biggest magnitude of decline was in EUR-USD. The NZD-USD pairing, meanwhile, fell by another 0.8%, building on the 1%-plus decline of yesterday. The dollar fared less well against the yen, which has retained a safe haven bid following the latest ratcheting of war-like rhetoric between Trump and Kim. USD-JPY remained heavy after yesterday logging a four-session low at 111.47.

    [EUR, USD]
    EUR-USD selling picked up, driving the pair to a one-month low of 1.1790. EUR-JPY and other euro crosses also came off, though the biggest magnitude of decline was in EUR-USD. We remain bearish of EUR-USD. The euro's rally from April had been already showing signs of tiring before the weekend's election in German, which has returned Merkel as Chancellor but in a weakened position, and now facing challenging coalition talks. There has been "bearish divergence" between the 14-day relative strength index and spot, for instance, with spot stretching higher while the underlying indicator of trend momentum started to decline. EUR-USD resistance is at 1.1870. The August-17 low at 1.1662 provides an initial downside target.

    [USD, JPY]
    USD-JPY has remained heavy after tumbling to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. We look for declines to around 109.50.

    [GBP, USD]
    Cable is in consolidation mode with a modest downside bias, having clawed out an 11-day low at 1.3431 yesterday, which surpassed recent lows by about 20 pips. Sterling is coming off a nine big figure rally from the late August low to the high that was seen at 1.3659 last week, a bid fuelled by the BoE's signalling that it is likely to take back the "emergency" post-Breixt rate cut of August 2016. We have been advising caution, given persisting Brexit-related uncertainties (the consequences of which were cited by Moody's as part of its rationale for cutting cut the UK's sovereign rating to Aa2 from Aa1), and the fact that inflation readings are set to decline in the coming months as base effects caused by sterling's post-Brexit nosedive drop out of the equation. Data from UK Finance today highlighted that UK business are building up retained earnings due to Brexit uncertainties, and the final release of Q2 GDP data tomorrow is expected to confirm UK growth at 0.3% y/y -- half that for the Eurozone. Cable has resistance 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 lifted to a four-day high 1.2389, which is three pips within three-week high terrain. The bid tone follows the Fed's hawkish guidance of last week, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up. There had already been 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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