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By XE Market Analysis December 26, 2013 10:50 am
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    XE Market Analysis: Asia - Dec 26, 2013

    The dollar drifted slightly higher, largely on vaporous volumes. EUR-USD shied away from the 1.3700 level, with standing offers noted at the figure and above. This said, the lack of interest overall should see downside limited to at most 1.3670 near term. USD-JPY meanwhile, matched overnight highs of 104.83, and could be within striking distance of the key 105.00 level in Japan tonight. The Japanese economic calendar is heavy, with PMI, CPI, and industrial production the headliners, which could have some significant influence on the yen. Cable bucked the trend, and moved back over 1.6400, though again, on very light volume. The CAD firmed up a touch as well, though good bidding interest is expected into 1.0600. On the economic front, weekly jobless claims dropped more than expected, which helped Treasury yields and equities higher.

    [EUR, USD]
    EUR-USD eased some in light post-Christmas trade, dipping from 1.3700 to 1.3680. The euro continues to struggle over 1.3700, and we expect further downside potential into the new year, as U.S. economic prospects improve, and as the Fed's taper program steps in. Firmer yields supported the greenback to a degree, with the 10-year note approaching the key 3.00% mark.

    [USD, JPY]
    USD-JPY rallied over 104.80 in N.Y. on Thursday. USD-JPY's major-trend peak at 104.63 and 104.50 were surpassed, and should now revert to support levels. We continue to target 105.00 in the near term, on the back of further BoJ easing, coupled with an improving U.S. economy, and Fed tapering.

    [GBP, USD]
    We continue to target 1.6500 in Cable. Resistance is marked at 1.6400, support at 1.6320 and 1.6320. S&P last week affirmed the U.K. 's triple-A rating but kept a negative outlook, saying that the country would be vulnerable to a downgrade if growth was not sustained (the main risk to which stems from Eurozone). Cable has been in a bullish trend for six months, reflecting a trade-weighted appreciation of the currency over this time as U.K. recovery took hold. We anticipate more of the same during the early part of 2014. Forward looking survey evidence, such as from PMI order data, and the CBI industrial trends survey, strong mortgage lending figures (which signal house price potential two to four months down the track), support this view.

    [USD, CHF]
    The Swiss currency's safe haven premium has unwound some now that the period of Fed policy uncertainty is over. EUR-CHF breached above 1.2250 last week, well up on the pre-Fed eight-month low of 1.2166. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is now at 1.2220 and 1.2200. USD-CHF faces resistance at 0.9000, but can be expected to breach this over the coming sessions.

    [USD, CAD]
    USD-CAD managed a 1.0616 to 1.0631 trading band in U.S. trade on Thursday, staying relatively low following the better Canadian GDP revealed on Monday. A holiday in Canada kept activity ultra-low. Looking forward, the loonie may continue to trade on a firmer footing, with both the Canadian and U.S. economies looking to recover further.

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