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By XE Market Analysis August 14, 2014 2:56 am
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    XE Market Analysis: Europe - Aug 14, 2014

    The dollar remained firm, with USD-JPY extending to a six-day high of 102.66 following sub-expectations Japanese machinery orders data and EUR-USD remaining heavy after yesterday's short-lived post-U.S. data rally above 1.3400. The euro dipped back to the 1.3350 area in early Europe following the 0.2% contraction in German GDP. Cable flat-lined around 1.6680 but looks likely to remain heavy in the wake of the BoE's Inflation Report yesterday, which signalled that a rate hike before year-end is all but off the table now, while the RICS house price balance for July came in below the median forecast for +51% at +49%. BoE MPC member Miles said that U.K. growth remains good, and that he doesn't see that the recovery is stagnating, but that the degree of slack in the economy means that interest rates can stay low.

    [EUR, USD]
    EUR-USD remains heavy after yesterday's short-lived post-U.S. data rally above 1.3400. The euro dipped back to the 1.3350 area in early Europe following the 0.2% contraction in German GDP. Focus is on the trend low at 1.3333, with sell stops reported to be clustered below 1.3330. We anticipate an eventual test of 1.3000 given the divergent paths of the ECB and the Fed and underlying economies. An initial trend target is at 1.3310, while resistance comes in at 1.3380 (yesterday's low), 1.3415 (yesterday's peak) and 1.3432 (Friday's high).

    [USD, JPY]
    USD-JPY extended to a six-day high of 102.66 following sub-expectations Japanese machinery orders data. The data follows the 6.8% q/q drop in Japanese Q2 GDP and the release of the BoJ minutes to the July 14-15 policy meeting, which showed most members remained committed to QQE as long as necessary. USD-JPY has this week breached above the 200-day moving average at 102.38. Support is now marked here, ahead of 102.17-20 and 102.00-10 (which encompasses the 100-day moving average). We remain USD-JPY bullish, assuming that geopolitical concerns remain contained.

    [GBP, USD]
    Cable looks likely to remain heavy in the wake of the BoE's Inflation Report yesterday, which signalled that a rate hike before year-end is all but off the table now, while the RICS house price balance for July came in below the median forecast for +51% at +49%. This followed data showing the first drop in average wages since 2009. BoE MPC member Miles said while U.K. growth remains good and that the recovery is not stagnating, the degree of slack in the economy means that interest rates can stay low, which repeats the message of the Inflation Report. We expect the 200-day moving average 1.6664 to be challenged, a breach and close below would imply scope for 1.6500 and below. Resistance is now marked at 1.6725, 1.6766 (last week's low) and 1.6800.

    [USD, CHF]
    EUR-CHF remains heavy, pressing below 1.2130 again. The cross last Friday made a five-month low at 1.2121, which now marks support, ahead of the cycle low at 1.2104 and 1.2100, which are key support levels. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has settled to an oscillating consolidation pattern within 1.0900-1.1000. Last Friday's rally stalled a few pips shy of the Aug-6 three-month peak at 1.0986, leaving the 1.1000 level untroubled and painting a less bullish technical picture following a two-week rally phase. There has been market talk of good selling interest into 1.1000. Key support is marked at 1.0903 (Aug-7 low) and 1.0900, and below here there is a confluence of the 20-, 100- and 200-day moving averages, contained within 1.0860-1.0870. Overall, still favour buying USD-CAD with potential seen for 1.1100, but stops should be kept tight.

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