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By XE Market Analysis December 5, 2013 3:28 am
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    XE Market Analysis: Europe - Dec 05, 2013

    The USD is softer versus Wednesday's London closing levels. USD-JPY logged a six-day low of 101.81 in New York PM session and is presently settled around the 102.00, over half a big figure down on yesterday's London closing level. The yen normally correlatives with risk appetite, and the currency appears to be following this pattern now with Wall Street and Japanese stocks left weaker amid upgraded risk of a 'Dectaper' by the Fed following the strong ADP private jobs report yesterday, which has flagged upside risk to Friday's official payrolls report. The dollar itself is also weaker against other currencies, including the main European units, despite a jump in Treasury yields to three-month highs. The dollar itself is apt to correlate negatively with risk appetite, so even if prospects for the Fed to commence QE tapering from the mid-month FOMC meeting we should be surprised to see the dollar come under 'ironic' pressure. EUR-USD has popped to a one-month peak of 1.3640, having jumped over 30 pips just ahead of the London open, despite the risk of a dovish press conference at today's ECB meeting. AUD-USD is also slightly firmer at 0.9040, though the Aussie is at the same time weaker against the JPY and EUR, having been affected by worse than expected October trade deficit data out of Australia, which follows yesterday's GDP disappointment and RBA statement earlier in the week that said that the currency should weaken .

    [EUR, USD]
    EUR-USD has popped to a one-month peak of 1.3640, having jumped over 30 pips just ahead of the London open. This may reflect market positioning into today's ECB meeting and tomorrow's U.S. payrolls report. The Oct-31 high of 1.3715 presents itself as the next natural target, though we have two-week trend resistance ahead of here at 1.3665. One factor supporting the EUR may be the market factoring in remarks by ECB member Constancio, who seemed to downplay the possibility of an immediate deposit rate cut by saying that negative rates are a measure for extreme situation. This suggests that the ECB is likely to keep this joker up its sleeve for now, but policymakers are frantically trying to find ways to boost lending, with conditional LTROs one option apparently discussed. Just want the ECB pulls out of the hat today should impact markets.

    [USD, JPY]
    USD-JPY logged a six-day low of 101.81 in New York PM session on Wednesday and was settled around the 102.00 around the London open today, over half a big figure down on yesterday's closing level. The yen normally correlatives with risk appetite, and the currency appears to be following this pattern now with Wall Street and Japanese stocks left weaker amid upgraded risk of a 'Dectaper' by the Fed following the strong ADP private jobs report yesterday, which has flagged upside risk to Friday's official payrolls report. The 20-day moving average offers a logical near-term target, at 101.53, and, in the event of a perkier than expect U.S. jobs report, which is the risk, the Nov-27 low at 101.15 may come into play.

    [GBP, USD]
    Sterling has consolidated after outperforming in the early part of the week, with yesterday's sub-expectations services PMI offsetting the very strong construction and manufacturing PMI releases from earlier in the week. We still favour a bullish view for sterling. The services PMI, at 60.0, still reflects robust expansion and Q4 GDP is headed for 1.0%-plus q/q growth, one of the highest growth rates current in the OECD group. We can expect an upbeat tone to Chancellor Osborne's presentation of the government's mid-fiscal year update today, with the economic revival having brought a U-turn in government tax revenues over the last six months. Today's announcement from the BoE's Monetary Policy Committee meeting should prove a non-event, with no changes widely expected to the 0.5% repo rate and the GBP 375 bln QE total, and with the MPC typically refraining from releasing a statement following no-change decisions. The minutes to the meeting will be published on December 18th.

    [USD, CHF]
    The CHF has been well bid this week, making one-month peak versus the USD and a two-month high against the EUR, and we expect more of the same. The rekindled U.S. Fed tapering view as proven supportive for the safe haven Swiss currency, as this backdrop has elicited risk aversion in global markets. We also anticipate a firm U.S. jobs report on Friday, which in the event should strengthen the possibility of the Fed commencing a tapering program as soon as this month. USD-CHF is technically looking bearish, breaching below the support of a three-week bear channel, and targeting 0.8960. EUR-CHF punched below range of the last month in the 1.2280-1.2300 region, but still remains above SNB intervention danger levels. The highlight on the Swiss calendar this week is November CPI data, which we expect to tick back to a -0.1% y/y rate following the unexpected dip to -0.3% y/y in October. Continued cool inflation data, which is occurring despite the currency limit peg, will ensure that Swiss policymakers remain fully committed to ultra-easing monetary policy despite improving economic fundamentals, though this is not likely to have a great bearing on the CHF.

    [USD, CAD]
    USD-CAD ran up to 1.0697 from 1.0675 following the BoC announcement and statement yesterday. The Bank emphasized the downside risks to inflation, which has been enough to keep the CAD under pressure. Good offers are reported into 1.0700-10, which encompasses the major trend high of yesterday. Buy stops are seen above 1.0710, and sources now say above the 20 level there is very little in the way of selling interest until 1.0750. Initial resistance is seen at the May, 2010 high of 1.0719.

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