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By XE Market Analysis April 23, 2015 2:48 am
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    XE Market Analysis: Europe - Apr 23, 2015

    EUR-USD trading has been somewhat erratic, clocking a two-day low today after making a two-day high yesterday. Yesterday's peak was left at 1.0800, and the pair failed to sustain gains above the 20-day moving average at 1.0762. The low seen in Asia was 1.0691. USD-JPY has posted a fourth consecutive up day, reaching a nine-day peak of 120.09. BoJ boss Kuroda said today that a QQE exit is not being considered, and that while he expects inflation to pick up in the second half of the financial year the 2% target may not be achieved until early in the next financial year. EUR-CHF has settled in the upper 1.03s after surging on Wednesday from the mid-1.02s. The move was ignited by the SNB's decision to expand the number of groups subject to negative rates on deposits at the central bank. Elsewhere, the NZD declined notably after RBNZ assistant governor said that the RBNZ was not considering a further interest rate increases.

    [EUR, USD]
    EUR-USD trading has been somewhat erratic, clocking a two-day low today after making a two-day high yesterday. Yesterday's peak was left at 1.0800, and the pair failed to sustain gains above the 20-day moving average at 1.0762. These levels now mark resistance, while support is at 1.0659-60. Yield differentials between the U.S 10-year T-note versus Bund have remained steady, near the 180 bp mark in the dollar's favour. The initial impact of the ECB's looser policy stance has faded since EUR-USD hit a 12-month low in March, and even concerns about Greece haven't affected the euro too badly, although there is certainly a degree of risk premium factored into the market. We still take a bearish view of EUR-USD in the bigger picture, seeing scope for an eventual more on parity, as we think the U.S. economy will grow out of its recent soft patch (partly caused by inclement weather and port strike on the west coast), which will in turn firm up expectations about the timing of Fed tightening.

    [USD, JPY]
    USD-JPY has posted a fourth consecutive up day, reaching a nine-day peak of 120.09. The dollar has breached above 20-, 50 and 200-day moving averages this week, though bigger-picture momentum still looks fairly flat, with the pair having been in a broadly sideways trading pattern since early December, which has been roughly centred on 120.00. There has been nascent speculation that the BoJ may taper its QQE program in 2016, though this is a minority view with just four out of 32 respondents to a Bloomberg survey expecting this, while there is a majority who still expect an expansion in stimulus by the end of October. BoJ boss Kuroda said today that a QQE exit is not being considered, though the technical details of an exit are. On CPI, he stuck to the boilerplate is saying that he expects inflation to pick up in the second half of the financial year, though the 2% target may not be achieved until early in the next financial year.

    [GBP, USD]
    Sterling has consolidated after yesterday's outperformance following the BoE MPC minutes for April, which noted that all members agreed that a repo rate hike was more likely than not over the three-year forecast period, with two members regarding the decision as finely balanced. The MPC also dropped the reference seen in the March minutes that the strength of sterling (which is up 15% y/y) could have potential to prolong the period for which CPI would remain below target, though it was noted that currency strength could curb exports and supress food prices. The MPC now noted that currency strength may have fed through quicker than expected, which could mean less downward pressure on prices to come and a faster pickup in inflation when the effects of recent falls in energy and food prices dropped out of y/y comparisons. We don't expect runaway gains in the pound, however, due to uncertainties about the May-7 general election.

    [USD, CHF]
    EUR-CHF has settled in the upper 1.03s after surging on Wednesday from the mid-1.02s. The move was ignited by the SNB's decision to expand the number of groups subject to negative rates on deposits at the central bank. The SNB said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary."

    [USD, CAD]
    USD-CAD has this week recovered to and settled around its 200-day moving average at 1.2245 after making a three-month low at 1.2088 last 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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