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By XE Market Analysis December 6, 2013 2:59 am
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    XE Market Analysis: Europe - Dec 06, 2013

    Quiet trade has been seen in pre-European Asia trade ahead of today's U.S. payrolls report showstopper. EUR-USD saw a 21 pip range centred on 1.3667, consolidating the gains seen yesterday. The gain largely reflected market disappointment that ECB didn't make any easing action yesterday. Yesterday's firm U.S. data has also firmed-up expectation for a 'Dectaper' by the Fed, though this has had a mixed impact on markets, sending Wall Street lower but helping Asia stocks to gain. USD-JPY and EUR-JPY were showing a 20 and 30 pip gain on yesterday's London closing levels, with a flurry of yen selling seen at the Tokyo fixing today. The AUD, at 0.9050 bid at the time of writing, was near net unchanged, having recovery from a short-lived dip that was seen on the news that S&P cut the rating of Qantas Airways, Australia's biggest airline. We see upside risk at today's U.S. jobs report, which in the event may have mixed implications for the USD -- supportive via interest rate differentials but possibly negative via the risk aversion influence should a pronounced risk-off theme take hold.

    [EUR, USD]
    Quiet trade will likely continue to be seen into of today's U.S. payrolls report showstopper. EUR-USD saw a 21 pip range centred on 1.3667 in pre-European Asian trade, consolidating the gains seen yesterday. The gain largely reflected market disappointment that ECB didn't make any easing action yesterday, with the central bank choosing instead to keep its policy powder dry for now. Yesterday's firm U.S. data has also firmed-up expectations for a 'Dectaper' by the Fed, though this has had a mixed impact on markets, sending Wall Street lower but helping Asia stocks to gain. We see upside risk at today's U.S. jobs report, given the outcomes of various component data, which in the event may have mixed implications for the USD -- supportive via interest rate differentials but possibly negative via the risk aversion influence should a pronounced risk-off theme take hold. The technical EUR-USD picture is more clear cut, with the break range highs in the 1.3600-1.3621 range bringing the Oct-31 high of 1.3715 into view. Support is at 1.3640 and the former resistance zone of 1.3600-21 should be considered a key support/risk zone.

    [USD, JPY]
    USD-JPY and EUR-JPY were showing a 20 and 30 pip gain on yesterday's London closing levels just ahead of the European open, with a flurry of yen selling seen at the Tokyo fixing today, reportedly formed by Japanese importers. USD-JPY recovered from a six-day low of 101.62, tripping a light round of buy stops through the 102.00 level. The bounce in the Nikkei stock index, after a fairy hefty losses over the last two days, helped return pressure on the yen, which is apt to correlate inversely with stock markets. Initial resistance comes in at 102.25 and the 200-hour moving average comes in at 102.40. Good support is now seen at 101.50-62. We see upside risk at today's U.S. jobs report, given the outcomes of various component data, which in the event would likely be a negative for USD-JPY on the back of consequent risk aversion. We would therefor favour shorting in the pair in the 102.20-40 zone.

    [GBP, USD]
    Sterling has consolidated lower versus the USD and EUR after outperforming in the early part of the week. We remain bullish on sterling and think the lower levels present opportunity to establish a short position, favouring the EUR-GBP route most. The sub-expectations services PMI out of the U.K. offset the very strong construction and manufacturing PMI releases from earlier in the week. However, it should be stressed that the services PMI, at 60.0, still reflects robust expansion and Q4 GDP is still, we think, headed for 1.0%-plus q/q growth, which would be one of the highest growth rates current in the OECD group. In Cable, we would favour buying into 1.6300 and see key support/risk at 1.6250. On the topside, some resistance can be expected at 1.6360 and 1.6400, should buy stop orders are seen clustered above the latter. The EUR-GBP rebound yesterday looks more attractive. The ECB refrained from taking further easing measures yesterday, but this remains a possibility next month. Selling into 0.8390 and 0.8400 is favoured, with 0.8415, which marked the high on November 14th and 19th, providing a clear risk level. We anticipate a return toward range lows near 0.8300.

    [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 now targeting 0.8960 after achieving our former target of 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.

    [USD, CAD]
    USD-CAD has settled to consolidation after the strong rally extended to a new major-trend high of 1.0707 on Wednesday following the BoC announcement and statement. The BoC had emphasized the downside risks to inflation. The pair looks to have become a bit overstretched, though a footing was found at 1.0625-30 yesterday. Good offers are now reported around 1.0700-10. Employment data is due out of both the U.S. and Canada today. We expect the former to have bigger impact, and a strong outcome, which is the risk given signals from already known component data, may put the CAD under pressure should a risk-off them take hold as markets cement Fed tapering.

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