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By XE Market Analysis April 1, 2015 2:48 am
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    XE Market Analysis: Europe - Apr 01, 2015

    EUR-USD lifted to the upper 1.07s in pre-European trade in Asia, despite Fed hawk Lacker saying that there is a strong case for June hike, although there is no pre-set timetable, and from Fed's George, also a hawk, who said that it's time for the Fed to talk about rates lift-off. Grexit concerns also very much remain in the background. Overall, this backdrop should inhibit upside potential for EUR-USD. On the flipside, we neither don't feel too bearish as March U.S. payrolls data, due tomorrow, is likely to show some mean reversion after outsized 239k-423k payroll gains since November that have defied moderating GDP growth. A period of volatile, but net sideways trade may be on the cards. USD-JPY dipped to a two-day low of 119.42 before recovering toward 120 in Tokyo. Japan's Markit/JMMA Manufacturing PMI for March came in at 50.3, below the flash estimate of 50.4, and reaffirming the slowness of the Japanese economy in Q1.

    [EUR, USD]
    EUR-USD lifted to the upper 1.07s in pre-European trade in Asia, despite Fed hawk Lacker saying that there is a strong case for June hike, although there is no pre-set timetable, and from Fed's George, also a hawk, who said that it's time for the Fed to talk about rates lift-off. Grexit concerns also very much remain in the background. Overall, this backdrop should inhibit upside potential for EUR-USD. On the flipside, we neither don't feel too bearish as March U.S. payrolls data, due tomorrow, is likely to show some mean reversion after outsized 239k-423k payroll gains since November that have defied moderating GDP growth. A period of volatile, but net sideways trade may be on the cards.

    [USD, JPY]
    USD-JPY dipped to a two-day low of 119.42 before recovering toward 120 in Tokyo. Japan's Markit/JMMA Manufacturing PMI for March came in at 50.3, below the flash estimate of 50.4, and reaffirming the slowness of the Japanese economy in Q1. USD-JPY continued to lack direction in the picture, with spot levels sandwich between the 20-day moving average at 120.42 and the 200-day moving average at 119.39. We think the big-picture bias will remain higher, as the Fed and BoJ policy paths set to contrast into 2016.

    [GBP, USD]
    Cable continues to oscillate in the upper 1.40s, lacking direction. EUR-GBP has also steadied around 0.7250-0.7300. Incoming UK data has and should continue to affirm recovery momentum (next focus on PMI surveys), but we don't reckon sterling has too much upside potential, as concerns about the May-7 general election are starting to bite as its not looking like there isn't going to be a clear winner, and particularly as the SNP party in Scotland will likely hold the balance of power in the event of a hung parliament. Cable resistance is at 1.4900-05 (which encompasses yesterday's high) and 1.4931 (20-day moving average), support at 1.4800-15.

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. There have been some analyst notes in circulation highlighting further policy options the SNB has available to try and keep a lid on the franc (including cutting rates deeper into negative territory). The SNB said at its March policy review that the franc is "significantly overvalued and should continue to weaken over time," and that, in a shot across the bows of the market, said it will continue to take account of the franc rate situation in policy decisions and "remain active in the foreign exchange market, as necessary." Both the SNB and SECO cut growth forecasts, factoring in the sharp franc appreciation that was seen in January after the central bank abandoned the 1.20 floor in EUR-CHF. The SNB expects growth of just under 1% this year (down from 2% expected previously) and SECO 0.9% (from 2.1%). Key support in EUR-CHF is at 1.0400-1.0422.

    [USD, CAD]
    USD-CAD dipped back under 1.2700 level after peaking on Tuesday at 1.2784. The 20-day moving average at 1.2633 now provides support. Yield differentials should remain a U.S. dollar positive into 2016 as the Fed remains on course to tighten policy, albeit on a less certain timetable than was envisaged before the March FOMC statement. The Mar-17 trend high at 1.2835 and the Aug-2009 high at 1.3063 are bigger picture targets.

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