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By XE Market Analysis December 12, 2013 3:06 am
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    XE Market Analysis: Europe - Dec 12, 2013

    USD-JPY recovered to a peak of 102.70 from the 102.15 low seen in New York yesterday after the London close. EUR-JPY is about 40 pips up on its London closing level, around 141.55. It's Japanese policymaker policy to have a weaker currency, and we expect the yen will see fresh trend lows in time. The AUD, meanwhile, logged a six-day low of 0.9010 against the USD, despite forecast-beating jobs data, with the Australian currency instead correlating with broader stock market losses. Australia's ASX 200 was down 0.8% and is registering its longest losing streak in 17-months. This on the 30th anniversary of the currency's float. The CHF traded lower against the USD and EUR, reportedly on position trimming ahead of today's SNB policy meeting, which if nothing else should seen the central bank reaffirm its commitment to ultra-easy monetary policy and its 1.2000 limit peg in the EUR-CHF cross. EUR-USD traded to a new trend peak of 1.3810 in the New York PM session, but has since settled back to the upper 1.37s, with the market wary of the upcoming appearance of ECB President Draghi in the EU Parliament and today's ECB monthly report, which are likely to highlight that the central bank remains prepared for further measures including a negative deposit rate to prevent inflation from falling further.

    [EUR, USD]
    EUR-USD traded to a new trend peak of 1.3810 in the New York PM session, but has since settled back to the upper 1.37s, with the market wary of the upcoming appearance of ECB President Draghi in the EU Parliament and today's ECB monthly report, which are likely to highlight that the central bank remains prepared for further measures including a negative deposit rate to prevent inflation from falling further. Yesterday's six-week peak at 1.3810 is now resistance, and above here we have the 2013 high of 1.3833, forming a key resistance zone in effect, which we think may sap the momentum out of the still-bullish market given our reasoning above. Initial support is seen at 1.3750 ahead of 1.3735, the latter of which was formally a strong resistance level.

    [USD, JPY]
    USD-JPY recovered to a peak of 102.70 from the 102.15 low seen in New York yesterday after the London close. EUR-JPY is about 40 pips up on its London closing level, around 141.55. It's Japanese policymaker policy to have a weaker currency, and we expect the yen will see fresh trend lows in time. The Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus last week is a contrast to the BoJ's committed anti-deflation fighting stance, though stock markets and associated risk appetite will need to remain reasonably buoyant, or at least nothing much worse than neutral, if fresh yen weakness is to be seen. USD-JPY initial resistance at 102.75, ahead of 103.00. Support at 102.40 and 102.15, the latter being yesterday's low and part of a support zone that we had been earmarking as a good level to buy. The main risk to those anticipating more fundamentally-driven yen weakness would be the advent of sustained risk aversion in global markets, a backdrop to which the yen would normally correlative with.

    [GBP, USD]
    The pound corrected quite sharply on Wednesday after trading at two-year peak against the dollar and five-year highs against the yen the day before. We remain bullish. GBP-USD trend support at 1.6355 was breached, and our initial support area at 1.6320-25 has held intact, ahead of the Dec-6 low of 1.6293. This two support points mark out a key support zone. A daily close below here would be bearish signal. Bigger picture, however, we expect further advances in sterling, befitting the U.K. economy's status as one of the fastest growing in the OECD developed nation grouping. It will be difficult for U.K. policymakers to compete against the soft currency policies of the likes Japanese policymakers. Yield differentials should be supportive, with the benchmark 10-year Gilt yield's approach of 3% starting to look almost attractive in a low yielding world, helping return sterling to the 'asset' side of the spectrum, despite the near zero interest rate policy of the BoE.

    [USD, CHF]
    The CHF traded lower against the USD and EUR, reportedly on position trimming ahead of today's SNB policy meeting, which if nothing else should seen the central bank reaffirm its commitment to ultra-easy monetary policy and its 1.2000 limit peg in the EUR-CHF cross. However, we don't anticipate too much downside. We expect the Swissie to remain well supported into next week's FOMC meeting in the U.S. as a significant portion of market participants are anticipating the Fed to commence QE tapering, which in the event may trigger a more sustained period of risk aversion in global financial markets. The ascent of the CHF-JPY cross this week to a 23-year peak was testament to the strength of the safe haven Swiss currency. EUR-CHF support is at 1.2200-1.2205. The breach of the Jun-24 low of 1.2218 on Wednesday was a bearish development. Initial target is the Apr-21 low of 1.2179. Resistance shows up at 1.2250 ahead of the 20-day moving average at 1.2274.

    [USD, CAD]
    USD-CAD has settled to lower path, correcting some of the strong gains seen following the recent strong rally that left 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 looked to have become a overstretched, and the mid-week breach of former consolidation support at 1.0625-30, and the 1.0600-05 zone, which encompassed former daily high points that were seen in late November, have been a strong near-term bearish signal. Initial retracement target is pegged at 1.0559, which both marks the Nov-30 low and the 50% retracement of the mid-Nov to early-Dec rally. Resistance is at 1.0590-1.0600. Should we see a successful House of Reps vote on the bipartisan budget deal, financial market risk appetite might drop, which would be a negative environment for the CAD.

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