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By XE Market Analysis July 3, 2014 11:25 am
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    XE Market Analysis: Asia - Jul 03, 2014

    The dollar has rallied on the strong payrolls report for June, which was replete with strong back revisions. EUR-USD has broken the week's low at 1.3640, triggering stops through 1.3635 and looks set for a test of 1.3600. We anticipate further widening in T-note over Bund yield differentials, and expect EUR-USD to eventually move in on the May low at 1.3503. USD-JPY has spiked above 102.00, to a peak of 102.24 so far. Cable has pressed toward 1.7100 and Tuesday's 1.7096 low.

    [EUR, USD]
    EUR-USD's declined concomitantly with a fresh widening in T-note v Bund yield differentials, which made fresh cycle highs above 136 bp, about 10 bp up on levels seen earlier in the week. Support at 1.3600-05 was breached, which encompassed the the 20-day moving average at 1.3604, though the Jun-26 low at 1.3575 was left untroubled. The stellar U.S. payrolls report underpinned the dollar generally, while an as-expected ECB announcement (aside from the shift to a six-week meeting schedule) itself had little impact, although euro's has softened against the euro, yen and other currencies as dollar bulls focus on the EUR-USD route. We expect EUR-USD to eventually move in on the May low at 1.3503.

    [USD, JPY]
    USD-JPY spiked above 102.00, to a peak of 102.30. The break above 101.95-97 resistance, which marked the near conjunction of the 20- and 50-day moving averages, portends a more bullish market, while the more optimistic global growth view seems to lie behind reports of foreign-bound Japanese investment flows, seeking better yields. Bigger picture, USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    Sterling took only a brief knock on a sub-forecast services PMI out of the U.K., which came in at 57.7 in June after 58.6 in May. We don't think the data changes the picture in the U.K. At 57.7, the survey still signals robust growth in the sector, and while the composite PMI ebbed to a three-month low of 58.4 in June from 59.1, this is also still a high level, consistent with Q2 GDP growth of 0.8% q/q. Cable support is pegged at 1.7115, the Jun-29 high, ahead of 1.7100.

    [USD, CHF]
    EUR-CHF breached 1.2150 this week and extended to a 1.2133 three-and-a-half month low as the situations in Iraq and Ukraine continues to underpin the Swiss currency's safe-haven premium. Technically, the break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, so far remaining unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap. .

    [USD, CAD]
    USD-CAD found a toehold after logging a fresh six-month low at 1.0628 on Wednesday, which was the sixth consecutive lower low on the daily chart. The pair breached below the 200-day moving average at 1.0783 last week and has been trending lower since. The move reflects a broad dollar-bloc bid that was initially sparked by much stronger than expected PMI data out of China and Japan, which has underpinned the commodity-correlating currencies as investors adjust a more optimistic world outlook. The BoC is also under pressure to reconsider its dovish policy stance. Resistance is pegged at 1.6996 (Friday's high) and 1.0700. Former congestion around 1.0580-1.0600 is support.

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