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By XE Market Analysis December 16, 2014 2:44 pm
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    XE Market Analysis: Asia - Dec 16, 2014

    Markets looked a little scary early in the N.Y session on Tuesday, following Russia's rate hike, as the ruble plunged to record lows, a fresh trend low in oil prices, diving sovereign yields, and retreating equity markets. As the morning progressed however, sentiment turned around some, allowing the dollar to rally some, oil prices to move modestly higher, and Wall Street turn positive. EUR-USD started out near 1.2560, and later posted 1.2478 lows. USD-JPY, which had been beaten down to near 115.55 into the open, climbed back over 117.75 into the London close. USD-CAD, which touched five-year 1.1665 highs in early trade, eased back to 1.1620 lows on repatriation flows. On the Calendar, the only release was November housing starts, which beat estimates.

    [EUR, USD]
    EUR-USD edged under 1.2500 in early trade, touching 1.2496 before being scooped back up to 1.2520. Improved EU PMI data, along with hawkish comments from Bundesbank President Weidmann, which dented hopes for quick ECB sovereign bond purchases, provided support to the euro through the morning. The recovery on Wall Street, along with a pause in oil's free-fall offset however, and limited EUR-USD's upside potential. The pairing later made 1.2478 lows, and idled on either side of the figure through the afternoon.

    [USD, JPY]
    USD-JPY recovered sharply from its dive to 115.57 lows overnight. The sell-off was largely driven by deleveraging trades, with JPY carry trades reportedly unwound on a large scale. With risk taking levels picking up through the N.Y. session however, dollar buyers returned, resulting in a USD-JPY rally as high as 117.76. While it remains to be seen, stabilization of recent market turmoil should keep the yen under pressure, as further BoJ easing measures remain in the cards.

    [GBP, USD]
    Sterling more than recovered post-CPI losses with Cable trading to the 1.5720 area ahead of the N.Y. open, after logging a low of 1.5610. That was a pretty sharp rebound, in part reflecting relatively thin year-end conditions and in part a broader dollar decline, which saw EUR-USD trade above 1.2500 for the first time in nearly three weeks. Cable managed 1.5786 highs in early N.Y., though later settled in under 1.5750.

    [USD, CHF]
    EUR-CHF has been bumping along around the 1.2010 level, the upper level of the rumoured SNB buffer zone between here and the 1.2000 franc cap. SNB boss Jordan said last week that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary. 'Further steps' would likely centre on negative interest rates, which SNB member Zurbruegg recently argued would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. A Bloomberg survey last week found that more than 60% of respondents believe that the SNB will have to use negative interest rates to maintain the cap in the scenario that the ECB commences quantitative easing.

    [USD, CAD]
    USD-CAD traded off its 1.1665 high, making 1.1611 lows in early North American dealings. The move came despite softer Canadian manufacturing data, and trend lows in oil prices. Talk heard of Canadian investment fund flows heading home ahead of year end, while the Repsol/Talisman deal should continue to support the CAD to a degree. Oil remains the wildcard however, and another downdraft in crude prices will tend to offset current CAD support.

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