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By XE Market Analysis December 16, 2013 3:39 am
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    XE Market Analysis: Europe - Dec 16, 2013

    A correction in USD-JPY provided the main theme in pre-Europe Asian trade, while dollar weakness spilled over into EUR-USD, which traded moderately high versus Friday's London closing levels. USD-JPY opened at 103.25 and then decided to continue the slide from Friday's multi-year high of 103.92, triggering stops through the 103.00 and 102.90 area. A low of 102.64 was seen, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. EUR-JPY and other yen crosses saw a similar price action. Lower stock markets today in Asia were a supportive influence for the yen, given its funding currency status. This followed a disappointing flash estimate of the December Markit-HSBC PMI reading for China PMI, and as markets continue to factor in the real risk that the Fed commences taping this week. EUR-USD, meanwhile, was showing about a 30 tick gain on London's closing level on Friday, settled back at recently familiar levels in the mid-1.37s. AUD-USD traded lower in the wake of disappointing China data, touching a low of 0.8935 before finding a toehold, leaving Friday's 0.8909 three-month low unchallenged.

    [EUR, USD]
    EUR-USD has steadied after dropping to a three-day low of 1.3709 on Friday. The euro's double failure above 1.3800 last week painted a technical picture of waning upside momentum, especially with prevailing levels are looking quite stretched above the 50- and 200-day moving averages relative to historical norms. Support comes in at 1.3694-1.3700, the former of which marks last week's low. From the fundamental perspective, ECB President Draghi affirmed the central bank's dovish stance last Thursday, before the EU Parliament, helping offset the central bank's refrain from detailing further non-standard easing measures at the policy meeting earlier in the month, and many analysts are expecting the central bank to commence a QE program next year. Meanwhile, the USD seems to be encountering a stronger bid following the successful passage of the bipartisan budget deal in the House of Reps, firming up the odds for the Fed announce QE tapering at next week's FOMC.

    [USD, JPY]
    USD-JPY opened Monday in Asia at 103.25 before deciding to continue the slide from Friday's multi-year high of 103.92, triggering stops through the 103.00 and 102.90 area. A low of 102.64 was seen, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. A breach below 102.60-64 would present the Dec-11 of 102.15 as the next correction target. EUR-JPY and other yen crosses saw a similar price action. Lower stock markets today in Asia were a supportive influence for the yen, and funding currencies like the yen typically rebound then there is a whiff of risk aversion in the air. This followed a disappointing flash estimate of the December Markit-HSBC PMI reading for China PMI, and as markets continue to factor in the real risk that the Fed commences taping this week.

    [GBP, USD]
    The pound corrected quite sharply last week after trading at two-year peak against the dollar and five-year highs against the yen. GBP-USD has managed to stabilized back above 1.6300 after leaving a 16-day low of 1.6262 on Friday. Big picture, 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]
    We expect the safe haven Swiss currency to remain broadly underpinned into this 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 has the potential to trigger a more sustained period of risk aversion in global financial markets. USD-CHF resistance is marked at 0.8900-0.8910. EUR-CHF support is at 1.2200-1.2205. The breach of the Jun-24 low of 1.2218 last Wednesday was a bearish development. Initial target is the Apr-21 low of 1.2179. A mixture of trend and consolidation resistance shows up at 1.2230 and 1.2250 ahead of the 20-day moving average at 1.2258.

    [USD, CAD]
    USD-CAD back under 1.0600 after last week's whipsaw 1.0669 higher on Thursday. The pair this remains in correction mode after the sharp three-month rally to 1.0708, see on Dec-6 and which was the highest traded since 2010. Initial target and support is marked at 1.0560, ahead of 1.0550, which roughly markets a series of former daily highs and lows, should be treated as a key risk level. Clear resistance is at 1.0594-1.0600.

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