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By XE Market Analysis April 24, 2015 2:49 am
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    XE Market Analysis: Europe - Apr 24, 2015

    EUR-USD settled around 1.0800 after pushing to a peak at 1.0845 on Thursday, which fell 3 pips short of last Friday's peak. Encouraging talk from Greek officials regarding prospects for a deal by the end of April helped give the euro a lift yesterday, but this optimism isn't being shared by creditors. Focus today will be on the Eurogroup meeting, though no one is expecting any breakthrough in negotiations. USD-JPY has sunk back to the mid-119s after failing to sustain gains above 120.00 following four consecutive days of moderately higher highs. The dollar is now trading back below its 20- and 50-day moving averages. Support is marked at 119.30-34, which encompasses the prevailing position of the 200-day moving average Wednesday's low. AUD-USD edged out a two-day high at 0.7796 and AUD-NZD a one-month high despite the latest Bloomberg survey finding that 23 of 26 expect the RBA to cut rates May-5. The OIS market is also pricing in 54% odds of a 25bp cut. The AUD's yield advantage has nonetheless risen to new highs around 59 bp at the 10-year U.S. versus Australian debt maturity.

    [EUR, USD]
    EUR-USD settled around 1.0800 after pushing to a peak at 1.0845 on Thursday, which fell 3 pips short of last Friday's peak. Encouraging talk from Greek officials regarding prospects for a deal by the end of April helped give the euro a lift yesterday, but this optimism isn't being shared by creditors. Focus today will be on the Eurogroup meeting, though no one is expecting any breakthrough in negotiations. Yield differentials between the U.S 10-year T-note versus Bund have continued to remain steady, near to the 180 bp mark in the dollar's favour. Bigger picture, the initial impact of the ECB's looser policy stance has faded since EUR-USD hit a 12-month low in March, even despite the recent spike in Grexit odds. We still take a bearish view of EUR-USD, however, seeing scope for an eventual more on parity, as think the U.S. economy will grow out of its recent soft patch (partly caused by inclement weather and a port strike on the west coast), which will in turn firm up expectations about the timing of Fed tightening.

    [USD, JPY]
    USD-JPY has sunk back to the mid-119s after failing to sustain gains above 120.00 following four consecutive days of moderately higher highs. The dollar is now trading back below its 20- and 50-day moving averages. Support is marked at 119.30-34, which encompasses the prevailing position of the 200-day moving average Wednesday's low. Bigger-picture momentum still looks fairly flat, with the pair having been in a broadly sideways trading pattern since early December, which has roughly been 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 Kuroda said in a speech on Apr-19 that while "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower.

    [GBP, USD]
    Cable has been consolidating in the mid-1.50s after lifting from sub-1.49 levels largely on the back of a generally softer dollar, though the upbeat tone of the BoE minutes from the April MPC meeting provided some sterling-specific support. March retail sales did unexpectedly fell 0.5% m/m in the UK, contrary to the median forecast for a 0.4% m/m increase, though underlying momentum remains good in the sector and trending improvements in real wages on the back of a strengthening labour market suggest the outlook will remain pretty solid. The May-7 UK election should be a consideration for sterling investors and traders given prevailing outcome uncertainties. We also expect the U.S. economy to grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade. Cable support is marked at 1.5000 and 1.5025 (50-day moving average), resistance at 1.5079 (Wednesday's high) and 1.5100.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.03s after surging on Wednesday from the mid-1.02s. A high was left at 1.0427. 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." We advise caution in trading long franc positions.

    [USD, CAD]
    USD-CAD dropped to a one-week low of 1.2121, swinging the Apr-17 three-month low at 1.2088 back into scope. Gains this week above the 200-day moving average, presently situated at 1.2251, failed to sustain. 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. The fall 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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