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By XE Market Analysis April 30, 2015 2:58 am
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    XE Market Analysis: Europe - Apr 30, 2015

    EUR-USD drifted back under 1.1100 after yesterday's big rally to 1.1188, which is the highest level seen since Mar-3. The rally smashed through a number of previous daily highs seen through Mar-18 and Apr-6 between 1.1014 and 1.1052, which now revert as support levels. Sub-expectations U.S. GDP and a dovish spin from the Fed drove the dollar lower, with markets now looking September as the earliest date for a policy tightening as such as move by June now looks off the cards. The euro, meanwhile, has been underpinned by the shift in the profile of the Greek government's negotiating team and fresh signs of economic improvement. USD-JPY ebbed to a one-month low of 118.49. The move largely reflects dollar softness in the wake of yesterday's U.S. GDP miss and dovish Fed guidance, though EUR-JPY has seen a correction too.

    [EUR, USD]
    EUR-USD has drifted back under 1.1100 after yesterday's big rally to 1.1188, which is the highest level seen since Mar-3. The rally smashed through a number of previous daily highs seen through Mar-18 and Apr-6 between 1.1014 and 1.1052, which now revert as support levels. Sub-expectations U.S. GDP and a dovish spin from the Fed drove the dollar lower, with markets now looking September as the earliest date for a policy tightening as such as move by June now looks off the cards. The euro, meanwhile, has been underpinned by the shift in the profile of the Greek government's negotiating team and fresh signs of economic improvement. This backdrop should keep EUR-USD bid on dips. Further out, we expect 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 ebbed to a one-month low of 118.49. The move largely reflects dollar softness in the wake of yesterday's U.S. GDP miss and dovish Fed guidance, though EUR-JPY has seen a correction too. The BoJ left policy unchanged today, as widely expected. We're still waiting on Kuroda's press conference and updated median-term GDP and CPI forecasts at the time of writing, where the risk is that the central bank raises its inflation forecast, which would quell expectations that the BoJ is headed for a further policy easing. USD-JPY bias is lower, with the pair having breached below its 20-, 50- and 200-day moving averages over the last couple of weeks. The Mar-26 low at 118.33 is support, and of 118.00. Resistance is at 119.16-24, which encompasses the intraday high and the 200-day moving average.

    [GBP, USD]
    Cable left a two-month peak at 1.5498 after yesterday's strong rally. The Feb-26 peak at 1.5552 is the next upside level of note, which is the highest level traded since Jan-2. At same time the pound posted a 10-day low against the euro. Cable's rally from sub-1.46 levels has occurred in little over two weeks. We are cautious. The May-7 UK election should be a consideration given outcome uncertainties and the fact that Cable lost about five points during the final run-in to the last election in 2010. 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 (though Labour have thus far refrained from saying they would do this). Bigger picture, the U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we still think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.04s after making a one-month high at 1.0508. This came after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the latest gain has been a 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 1.1914 yesterday, since recovering the 1.200 handle. The latest drop 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-odd rise in oil prices. The 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 at 1.1950-1.2000 is now in play.

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