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By XE Market Analysis June 5, 2014 3:25 pm
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    XE Market Analysis: Asia - Jun 05, 2014

    FX trade was volatile in N.Y. on Thursday, especially for the euro, which gyrated wildly in the aftermath of the ECB actions. The central bank announced targeted LTROs and an end to SMP sterilization, in addition to 10 bp rate cuts that take the refi rate to 0.15% and the deposit rate to -0.10%. Draghi also announced an intensification of preparatory work for a QE program. EUR-USD slid to near 1.3500 after the press conference got under way, though perhaps some disappointment there was no QE announced, and the likelihood the market was already net short of euros, losses were short lived. The euro rebounded later to post intra day highs near 1.3570. Elsewhere, USD-JPY faded lower, despite the better risk backdrop, as that pairing's recent rally appears to be running out of steam into 103.00. U.S initial jobless claims were in-line with expectations, and had little impact given the focus on the ECB.

    [EUR, USD]
    EUR-USD found a band of short covering backed bids ahead of 1.3500 after the post-ECB slide, with the pairing touching 1.3503 lows before rebounding to 1.3570. Draghi put a floor under rates in his comments, so further cuts don't appear to be in the cards. Later, Intra day EUR-USD stops were tripped at 1.3620, resulting in a move to intra day highs of 1.3653, before heading back under 1.3620. Price action remained very volatile, and afternoon dealings saw the euro touch two-week highs just shy of 1.3670, with short covering continuing. Dealers said there has been some disappointment with the scope of refi and deposit rate cuts, with many looking for 15 bps, not the 10 bps that was offered. In addition, some had been expected the start of QE. These factors, combined with the market being fairly heavily short of euros, resulted in a major squeeze.

    [USD, JPY]
    USD-JPY longs appeared to have partially thrown in the towel on Thursday, after the pairing struggled, and failed to take out Wednesday's 102.79 high. The dollar touched 102.34 lows after peaking at 102.75 in the aftermath of the ECB and U.S. claims data. The risk backdrop today was supportive of USD-JPY gains, though sellers into 102.50 capped upside. We now look for a test of 102.00 near term.

    [GBP, USD]
    EUR-GBP headed to its lowest levels seen Since December of 2012 following the on-hold BoE, and the rate cutting ECB on Thursday. The cross based at 0.8065 from an intra day highs of 0.8140. EUR-GBP later recovered back over 0.9125, as EUR-USD staged a large short covering rally. Cable followed higher with EUR-USD, though was not able to keep up, peaking near 1.6820.

    [USD, CHF]
    EUR-CHF traded under 1.2175 in N.Y. trade, with a very volatile EUR-USD after the ECB rate cut weighing. USD-CHF ran into heavy selling interest over 0.9030 however, its highest since mid February, and was ultimately pushed back under 0.8910. The Swiss franc has been quite steady, though geopolitics appears to be calming some, which should allow the CHF to weaken modestly in the days ahead.

    [USD, CAD]
    USD-CAD rallied to 1.0960 intra day highs in the aftermath of the softer Ivey PMI print. The pairing had found support earlier on its dip under 1.0920, where corporate bidding was reported. From here, standing offers at 1.0960-70 capped gains, and indeed sellers are noted all the way to 1.1000.

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