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By XE Market Analysis April 14, 2015 3:05 am
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    XE Market Analysis: Europe - Apr 14, 2015

    EUR-USD has remained above yesterday's four-week low at 1.0520, but the euro has been pressed to new lows against the yen and sterling, among other currencies. EUR-JPY clocked a near two-year low at 126.21, bringing the cumulative losses of the cross to some 4% over the last eight days. Fresh lows in Bund yields under 0.15% have been weighing on the euro, along with the persisting themes of 'Greekaccident' risk and ECB money printing, factors which have doubtlessly been plaguing the considerations of reserve and real money managers. USD-JPY traded to a six-day low of 119.66, on route breaching below both the 20- and 50-day moving averages. Yen outperformance was driven by EUR-JPY.

    [EUR, USD]
    EUR-USD has remained above yesterday's four-week low at 1.0520, but the euro has been pressed to new lows against the yen and sterling, among other currencies. EUR-JPY clocked a near two-year low at 126.21, bringing the cumulative losses of the cross to some 4% over the last eight days. Fresh lows in Bund yields under 0.15% have been weighing on the euro, along with the persisting themes of 'Greeaccident' risk and ECB money printing, factors which have doubtlessly been plaguing the considerations of reserve and real money managers. On the dollar side of the coin, the U.S. still has slack in the economy that is causing the Fed to drag its feet within regard to tightening, but the recovery process is underway and the general view is that the typically laggard labour market experience stronger wage rises later in the year, which will be the key metric to cause the Fed to eventually pull the rate-hike trigger. We continue to expect parity will be reached in EUR-USD. The Mar-12 cycle low at 1.0462 offers an interim focus. Resistance is marked at 1.0620 and 1.0683-1.0700.

    [USD, JPY]
    USD-JPY traded to a six-day low of 119.66, on route breaching below both the 20- and 50-day moving averages. Yen outperformance was driven by EUR-JPY, dove to a near two-year low at 126.21 as the cumulative losses the cross has seen over the last eight days extended to about 4%. USD-JPY's technical picture now looks pretty muddy. The pair has been plying a broadly sideways path since early December, though we remain moderately bullish. The Fed remains on course for an eventual rate hike, and while albeit on an uncertain timetable this is a stance which contrasts that of the BoJ. We see scope for USD-JPY to return to recent highs in the 121.00-122.00 area, and potential to 125.00 beyond here. Support is marked at 119.43-50 and 119.20, which is the prevailing position of the 200-day moving average.

    [GBP, USD]
    Sterling has found some buoyancy over the last day, gaining against both the dollar and euro. We have been recommending a short position in Cable into the upcoming May-7 election, targeting a revisit to the low seen in May 2010 at 1.4229. It is highly probable that the election will produce a hung parliament, though it's uncertain whether a coalition or a minority government will come into existence. There is also a good chance that the SNP (Scottish Nationalist Party) will end up holding the balance of power, while another uncertainty is the possibility that a new election might be called (which most pundits reckon would be unlikely in the event of a hung parliament). There are numerous possibilities in terms of policy implications, ranging from 'anti-business' fiscal tightening to, if the Conservatives do well, a course to hold a referendum on EU membership by 2017. The fiscal policy of the government may also lack clarity. UK markets have started to factor these risks as the elections starts to loom large on the horizon. With polls pointing to a messy outcome, sterling looks set for more bouts of wobbles.

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. 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 has ebbed back under the 1.2600, leaving Friday's two-week high at 1.2466 untroubled. 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 jobs report, weakness in which was more about mean reversion after a series of outsized headline gains than change of trend. The Mar-17 trend high at 1.2835 and the Aug-2009 high at 1.3063 are bigger-picture targets. USD-CAD support is at 1.2567 (50-day moving average) and 1.2500.

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