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By XE Market Analysis December 29, 2014 3:02 pm
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    XE Market Analysis: Asia - Dec 29, 2014

    FX trade was subdued through the N.Y. session on Monday, though the dollar managed to move broadly higher. EUR-USD touched new trend lows of 1.2145, while USD-JPY made its way over 120.70 from lows near 120.50. Oil prices dropped to new lows under $53, as Wall Street was steady, and yields were virtually unchanged. Based on the much improved growth trends in the U.S. versus much softer European and Japanese outlooks, the dollar should continue to climb in early 2015. Japan and the euro zone remain on the path to further easing, with ECB QE likely in January, and further stimulus in the cards from the BoJ and MoF. This contrasts with (perhaps) a Fed rate hike by mid-year. We target EUR-USD at sub-1.2000, and USD-JPY at 124.00 in Q1 of 2015.

    [EUR, USD]
    EUR-USD was steady in early N.Y. dealings, moving on either side of 1.2200 in very light trade. The Greek tragedy continues to unfold, though today's outcome in elections for president was largely expected by the markets, and had minimal impact on the euro. The pairing has traded under 1.2170 for the past four consecutive sessions, though so far, downside has been limited to 1.2164. The euro later dropped to new trend lows of 1.2145, tripping up light stops on the move under last week's prior trend low of 1.2164. The August 2, 2012 low of 1.2133 is the next support level.

    [USD, JPY]
    USD-JPY peaked over 120.70, after holding above Friday's 120.14 low, but under last week's high of 120.82. There was little reaction to Japan's latest 3.5 tln yen stimulus package announced overnight, with little overall impact expected. Overall, we remain USD-JPY bullish on the back of yield differentials, with the 10-year U.S. T-note yield advantage at new cycle highs above 190 bp versus the JGB equivalent. With Japan closed for the remainder of the week after tonight's session however, further dollar gains will likely have to wait until next week.

    [GBP, USD]
    Cable remains in the grip of a being in a bear trend, which has been persisting since the July cycle high at 1.7192. Resistance is now marked at 1.5634 (20-day moving average) and 1.5700, support at 1.5486 and 1.5500. The August 2013 low at 1.5102 should be in the crosshairs of bears. The drop in UK inflation to a six-year low of 1.0% has strengthened the dovish voices at the BoE's MPC.

    [USD, CHF]
    EUR-CHF has established a range below 1.2050 after spiking to a 1.2096 peak Dec-18 after the SNB implemented a negative interest rate of -0.25%. SNB member Zurbruegg recently argued that a negative interest rate would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. SNB boss Jordan had said recently 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.

    [USD, CAD]
    USD-CAD was centered on the 1.1625 level through the morning session, with trade very light overall. WTI crude found initial support at $55, which was slightly loonie-positive, though good standing USD-CAD bids are seen into the 1.1600 level now. The pairing mounted a modest rally to 1.1648 as oil prices later sank under $53/bbl, though follow through was limited.

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