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By XE Market Analysis April 20, 2015 3:13 am
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    XE Market Analysis: Europe - Apr 20, 2015

    The dollar is trading moderately firmer in early-week trade after taking a battering last week following a string of net softer U.S. data. EUR-USD has opened the week trading in a narrow range either side of 1.0800, a level which approximately marks the half way point of the range seen over the last six weeks. Among a batch of weekend policymaker remarks from the G20 meeting ECB's Draghi's "it is pointless to go short on the euro" stands out as he repeated that the Eurozone has the policy-tool armament to deal with Greek contingencies. USD-JPY is steady in the upper 118s after capping out in Tokyo at 119.04. The range has been well within Friday's, leaving the three-week low from then at 118.57 untroubled. Today's tertiary index and Reuters Tankan survey data out of Japan had little bearing. Cable is back below 1.5000 after capping out at a one-month peak of 1.5053 on Friday. The EY Item Club said that the UK recovery has now reached "escape velocity," and that cheap oil and stronger pay growth is setting up the biggest rise in disposable incomes for two decades. AUD-USD traded around 0.7800, consolidating last week's gains seen in the wake of Australia's March employment report.

    [EUR, USD]
    EUR-USD has opened the week trading in a narrow range either side of 1.0800, a level which approximately marks the half way point of the range seen over the last six weeks. Among a batch of weekend policymaker remarks from the G20 meeting ECB's Draghi's "it is pointless to go short on the euro" stands out as he repeated that the Eurozone has the policy tool armament to deal with Greek contingencies. Recent EUR-USD gains from sub-1.06 levels have mostly been prompted by a run of softer U.S. data that has all but switched off chances of a Fed tightening as soon as June. The euro, meanwhile, has the benefit of signs of economic recovery, though ECB boss Draghi stressed that there would be no tapering of the QE program, while the Greek situation remains a significant wildcard risk factor. The latter consideration alone should mean that the euro's upside potential will be limited even though the dollar is down in the popularity stakes. EUR-USD looks set for more chop. Resistance is marked at 1.0848 (Friday's peak) and 1.0953 (50-day moving average), support at 1.07334-35.

    [USD, JPY]
    USD-JPY is steady in the upper 118s after capping out in Tokyo at 119.04. The range has been well within Friday's, leaving the three-week low from then at 118.57 untroubled. Last week the pair dropped from levels above 120.00 and, on route, took out the 20-, 50- and 200-day moving averages in what is a technically bearish evolution. The Mar-25 low at 118.33 provides the next downside marker. The 200-day moving average at 119.28 marks resistance. Relatively upbeat remarks from Japanese policymakers over the last week have helped support the yen while the dollar is down in the popularity stakes following a run of softer data and mixed Fedspeak, which has seen the 2-year JGB versus T-note yield differential move against the dollar's favour. Today's tertiary index and Reuters Tankan survey data out of Japan had little bearing on markets.

    [GBP, USD]
    Cable back below 1.5000 after capping out at a one-month peak of 1.5053. Friday's rally stalled 50-day moving just shy of the 200-day moving average. Initial support is now marked at 1.4949-50, ahead of 1.4900 and 1.4825. Incoming UK data has and should continue to show that growth momentum is building in the economy. The EY Item Club said that the UK recovery has now reached "escape velocity," and that cheap oil and stronger pay growth is setting up the biggest rise in disposable incomes for two decades, which the group estimates will by +3.7% in 2015 (based on CPI averaging 0.1%). We concur with this view. The EY Item Club also expects GDP growth of 2.8% this year, which would match last year's, and 3.0% in 2016. The group also notes that consumer behaviour has not been affected by uncertainties about the outcome of the upcoming election. The general election is on May-7, which we expect will curtail the pound's upside potential.

    [USD, CHF]
    EUR-CHF remains heavy after making a 10-week at 1.0274. While euro underperformance remains the SNB will probably be best advised to sit on its hands, although the central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." Sight deposit data, however, suggest that the SNB hasn't intervened since January, and previous speculation of the central bank having a "soft floor" at 1.0500 has long since been discredited. The post-peg abandonment low is at 0.9714 (according to our data), though we don't anticipate a revisit. For every big figure EUR-USD losses, EUR-CHF has been losing about 50 pips, so even with EUR-USD trading 0.95 handle, on this crude basis, the cross would still be trading above 0.9800. The wildcard for the euro and EUR-CHF is what happens in Greece.

    [USD, CAD]
    USD-CAD recovered to near its 200-day moving average at 1.2218 after making a three-month low at 1.2088 on Friday. Last week's sharp decline (the pair had opened near 1.2570) follows a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by a decent rally in oil prices. USD-CAD's down move is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region is at 1.1950-1.2000.

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