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By XE Market Analysis April 29, 2015 2:26 am
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    XE Market Analysis: Europe - Apr 29, 2015

    EUR-USD extended to a three-week peak of 1.0991 during the late NY session yesterday, and has since consolidated in an narrow ranged just off here. News earlier in the week that Athens has revamped its negotiating team has supported the euro. Good demand has been seen in EUR-JPY, too, which logged a three-week peak yesterday. EUR-CHF has also sprung higher, to the 1.0500 area. Elsewhere, USD-JPY edged out a nine-day low at 118.75. Declines from levels above 120.00 over the last week reflect broader dollar weakness for the most part. Markets in Tokyo were closed today as part of for Japan's Golden Week holiday. AUD-USD fell back below 0.8000 after surging to a three-month high at 0.8027. We recommend selling Aussie here as the RBA will not like the pace of the currency's recent gains and will be sure to deliver a rate cut at next Tuesday's SMP. A GS research note also said that there is a risk that S&P places Australia debt on a negative outlook over the coming months, which is a view that's been in the background for some time. In China, meanwhile, the PBOC's chief economist also downplayed the possibility of QE, which is a further negative for the AUD.

    [EUR, USD]
    EUR-USD extended to a three-week peak of 1.0991 during the late NY session yesterday, and has since consolidated in an narrow ranged just off here. News earlier in the week that Athens has revamped its negotiating team has supported the euro. Good demand has been seen in EUR-JPY, too, which logged a three-week peak yesterday. EUR-CHF has also sprung higher, to the 1.0500 area. EUR-USD faces tough resistance levels, with the pair failing to close above 1.1000 on six different days between Mar-18 and Apr-6. Despite recent gains and the abatement in concerns about Greece, we continue to take a bearish bigger-picture view of EUR-USD, premised on the view that the U.S. economy will grow out of its recent soft patch (which was partly caused by inclement weather and a port strike on the west coast), which would in turn firm up expectations about the timing of Fed tightening.

    [USD, JPY]
    USD-JPY edged out a nine-day low at 118.75. Declines from levels above 120.00 over the last week reflect broader dollar weakness for the most part, with EUR-JPY having logged three-week highs yesterday. Markets in Tokyo were closed today as part of for Japan's Golden Week holiday. Resistance is at 119.20-25, which encompasses yesterday's high and the prevailing situation of the 200-day moving average. All of the 20-, 50- and 200-day moving averages are currently sitting within 119.00-120.00, and all have pretty horizontal profiles, reflecting flat bigger-picture momentum. The pair has 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 at a recent 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 said that while the "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower. We still favour the upside of USD-JPY as we expect the U.S. economy to grow out of its recent soft patch, which in turn would firm up Fed tightening expectations.

    [GBP, USD]
    Cable edged out a fresh eight-week high at 1.5347. Ten of the last thirteen days have seen a higher high posted, illustrating the strength of the rally from sub-1.46 levels. Markets overlooked yesterday's disappointing prelim UK Q1 GDP data, which at +0.3% q/q was half the median forecast, and down from the 0.6% growth of Q4. While disappointing, the outlook for Q2 is brighter given gains in April PMI survey data and trending improvement in the labour market. We remain bullish sterling near term, though the looming May-7 UK election should be a consideration. Latest polls put the Conservatives in the lead, but without an outright majority, which leaves the prospect of a SNP-Labour coalition as the most likely outcome. Markets thus far haven't being showing any undue anxiety about this, however. Bigger picture, we see headwinds ahead for Cable. The U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF has lifted to three-week highs just shy of 1.0500. This comes after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the current move is natural euro rally. 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." SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD logged a three-month low at 1.2015 yesterday. This extends the sharp declines that have been seen since mid-April from levels near 1.2700, which has 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 $10 rise in oil prices. That fall in USD-CAD 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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