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By XE Market Analysis December 9, 2013 3:02 am
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    XE Market Analysis: Europe - Dec 09, 2013

    Asia markets were mostly in risk-on mode following stronger than expected China exports and biggest trade surplus since 2009, which helped offset sub-expectations Japanese GDP while backing up Friday's solid U.S. jobs report. The AUD popped higher in early trade, though failed to sustain gains, and moderate yen weakness following disappointing Japanese GDP figures, which has revived market talk about the possibility of fresh monetary stimulus by the BoJ, has been the main theme in pre-European open trade in Asia. USD-JPY and EUR-JPY showing about a 30-40 pip gain on Friday's London closing levels. The EUR-JPY was the relative outperformer, with EUR-USD also slightly higher, despite remarks from ECB's Weidmann that the central bank is ready to act further if necessary to preserve price stability. USD-JPY recovered the 103.0 handle, making 103.23 at the peak, but sank back to a 102 handle amid reports of solid Japanese exporter selling, who made the most of the best levels in nearly a week. EUR-USD extended Friday's gains, making a fresh one-month peak of 1.3721 before settling back under 1.3700. Large buy stops were reported through 1.3835-40. There remains uncertainty about what the Fed will do in light of the jobs report, though dollar bears should take note that a Bloomberg survey found the share of economists forecasting QE tapering to commence this month had doubled..

    [EUR, USD]
    EUR-USD extended Friday's gains, making a fresh one-month peak of 1.3721 before settling back under 1.3700. Large buy stops were reported through 1.3835-40 have remained unchallenged. EUR-JPY has also been well bid following sub-expectations Japanese GDP data. Technical resistance is pegged at topside at 1.3830, and the Oct-25 cycle high of 1.3803 presents itself as a nature target for those holding a bullish view. We think euro bulls should take caution, however. The ECB had surprised markets by refraining from taking fresh easing measures at its meeting last week, but ECB's Weidmann said that the central bank is ready to act further if necessary to preserve price stability. Also, there remains uncertainty about what the Fed will do in light of the jobs report, though dollar bears should take note that a Bloomberg survey found the share of economists forecasting QE tapering to commence this month had doubled.

    [USD, JPY]
    The yen returned to a weaker footing following disappointing Japanese GDP figures, which has revived market talk about the possibility of fresh monetary stimulus by the BoJ, which in turn reaffirms the yen's funding-currency status. USD-JPY recovered the 103.0 handle, making 103.23 at the peak, but sank back to a 102 handle amid reports of solid Japanese exporter selling, who made the most of the best levels in nearly a week. We favour a bearish view of the yen, The general revival in risk-appetite following Friday's strong U.S. jobs data and today's strong Chinese trade data should be a net negative environment for the yen, which remains the short vehicle currency of choice. The Dec-2 high of 103.37 is the initial target. Stops are reported through 103.50 while big option expirations are scattered between 103.00-104.00.

    [GBP, USD]
    Sterling remains a favoured currency of ours, and we would favour buying into 1.6300 and see key support/risk at 1.6250. On the topside, some resistance can be expected at 1.6393 and 1.6400, which encompasses Friday's peak, and buy stop orders are seen clustered above the latter. We target 1.6443 Dec-1 high initially, and 1.6500 remains our bigger-picture objective. GBP-JPY looks a better route for sterling bulls, with weak Japanese production data reaffirming the yen's funding currency of choice status. GBP-JPY's recent cycle peak of 169.14 is targeted, and buying into 168.00 is favoured, with initial support/risk at 167.50. The week's data should affirm that economic recovery is sustaining. Though the sub-expectations November services PMI last week presented itself as a speed check for markets, both the construction and manufacturing PMI were very strong, while the services figure, at 60.0, still reflects a robust expansion. We think Q4 GDP is still headed for 1.0%-plus q/q growth, which would be one of the highest growth rates currently in the OECD group.

    [USD, CHF]
    The run of CHF gains stalled following the strong U.S. payrolls report on Friday, which managed to revive risk appetite in global markets, though the issue about whether the Fed will commence QE tapering as soon as this month remains unresolved and could still cause some indigestion to markets. The safe haven Swiss currency will remain sensitive to developments on this front. We expect the Fed to refrain from tapering at its meeting next week, and this implies scope for CHF weakness, though the technical picture in USD-CHF and EUR-CHF is pretty much the opposite. EUR-CHF support is given by Friday's low of 1.2215, and that fact that this matched the Sep-29 nadir strengthens the significance of this as a key support level. There was also a low of 1.2218 made on Jun-24, which builds the significance of the 1.2215-20 region as a support base.

    [USD, CAD]
    USD-CAD has settled to consolidation after the strong rally extended to a new major-trend high of 1.0707 last Wednesday following the BoC announcement and statement, which emphasized the downside risks to inflation. The pair looks to have become a bit overstretched, though a footing was found at 1.0625-30 on Thursday. Good offers are now reported around 1.0700-10. A consolidation phase looks likely over the coming days, especially with U.S. Fed policymakers going into the blackout phase ahead of next week's FOMC, which will deprive markets of clues with regard to whether the Fed will commence tapering this month or next.

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