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By XE Market Analysis April 21, 2015 1:15 am
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    XE Market Analysis: Europe - Apr 21, 2015

    EUR-USD has traded moderately lower over the last day, partly on general dollar strength and partly on euro underperformance (EUR-JPY and other euro crosses are lower). The low was 1.0712, and this and 1.0700 mark nearer-term support levels. Resistance is marked at 1.0751 and 1.0782 (20-day moving average). The focus remains on next Greece-versus-Eurozone policymaker showdown, which will be staged at Friday's Eurogroup meeting, with odds for a Grexit scenario shortening significantly over the last week given Athens' intransigence to adopt reforms. Elsewhere, USD-JPY edged out a six-day high of 119.50, re-establishing itself above its 200-day moving average at 119.29, which now reverts as a support level. The AUD has underperformed after both RBA Governor Stevens and the minutes to the April policy review left the door open to another rate. AUD-USD fell to a six-day low of 0.7683, and AUD-NZD a two-week.

    [EUR, USD]
    EUR-USD has traded moderately lower over the last day, partly on general dollar strength and partly on euro underperformance (EUR-JPY and other euro crosses are lower). The low so far has been 1.0712, and this and 1.0700 mark nearer-term support levels. Resistance is marked at 1.0751 and 1.0782 (20-day moving average). We think a decline to recent lows under 1.0550 is likely over the coming week. The overriding focus is on next Greece-versus-Eurozone policymaker showdown, which will be staged at Friday's Eurogroup meeting. The odds for a Grexit scenario have been shortening significantly over the last week given Athens' intransigence to adopt reforms. It's hard to see there can be any progress while Syriza's red lines (which put wage cuts, privatizations etc out of bounds in negotiations) remain. Syriza has pledged there will be a referendum or snap election if they fail to reach a deal with the Eurozone and IMF. This uncertainty should keep the euro under pressure.

    [USD, JPY]
    USD-JPY edged out a six-day high of 119.50, re-establishing itself above its 200-day moving average at 119.29, which now reverts as a support level. The convergence of this average and the 20- and 50-day moving averages, which are presently sitting at 119.62 and 119.82, respectively, indicate the broad lack of direction of USD-JPY, which has been entrenched in a sideways trading pattern since early December. Speculation that the BoJ might taper its QQE program next year has helped the yen hold its own against the dollar. We anticipate more broadly sideways trading.

    [GBP, USD]
    Cable extended to a six-day low of 1.4880, trading largely in step with EUR-USD, leaving EUR-GBP trading a narrow range around 0.7200. Sterling had capped out at one-month peak of 1.5053 on Friday, which stalled just shy of the 200-day moving average. Initial support is now marked at 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 clocked a new 10-week at 1.0234 on Monday, since settling to the 1.0260-70 area. Save haven demand for francs seem to have been at play, given the prevailing Grexit risk, though this would risk the wrath of the Swiss central bank. 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.

    [USD, CAD]
    USD-CAD recovered above its 200-day moving average at 1.2227 after making a three-month low at 1.2088 on Friday. Last week's sharp decline (the pair had opened near 1.2570) followed 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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