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By XE Market Analysis December 16, 2014 3:13 am
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    XE Market Analysis: Europe - Dec 16, 2014

    USD-JPY led the dollar lower today. The pair's move correlated with fresh declines in Asian stock markets following the Markit/HSBC China manufacturing PMI for December, which came in at 49.5 in the flash estimate, down on the 49.8 median and first sub-50 contractionary reading in seven-months. USD-JPY logged a one-month low of 117.12, which is just over 50 pips down on Monday's New York closing level. Japan's Markit manufacturing PMI for December came in at 52.1 in the initial estimate. The decline in USD-JPY led dollar losses elsewhere, though most pairings remained within the ranges seen yesterday. EUR-USD lifted back above 1.2450. AUD-USD scraped out a fresh four-year low of 0.8200 before recovering to the 0.8240 area. The minutes to the RBA's December meeting repeated that rate stability is likely most prudent course and that a further fall in currency is needed for economy.

    [EUR, USD]
    EUR-USD remains in consolidation, centred around 1.2450. The recent dive in oil prices will suit the doves at the Fed, which may curtail the dollar's upside potential into the FOMC announcement on Wednesday, although we still expect the "considerable time" phrae to be dropped. We remain bearish of EUR-USD in the bigger picture on the view of diverging Eurozone and U.S. economic growth, and with the ECB inching closer to implementing QE. We look for an eventual move on the July 2012 low at 1.2042 and see recent gains as opportunity to establish a short position. Resistance is marked at 1.2495-1.2500.

    [USD, JPY]
    USD-JPY logged a one-month low of 117.12, which is just over 50 pips down on Monday's New York closing level. The pair's move correlated with fresh declines in Asian stock markets following the Markit/HSBC China manufacturing PMI for December, which came in at 49.5 in the flash estimate, down on the 49.8 median and first sub-50 contractionary reading in seven-months. Japan's Markit manufacturing PMI for December came in at 52.1 in the initial estimate. PM Abe's landslide victory at the weekend's election gives a fresh mandate to yen-negative 'Abenomics' policies and we see that the overall bias for USD-JPY will remain to the upside, anticipating further gains above 120.0.

    [GBP, USD]
    Cable is mired in consolidation at the moment, broadly centred around 1.5600-1.5700. We continue to class Cable as being in a bear trend, which has been persisting since the July cycle high at 1.7192. Resistance is now marked at 1.5700, while key resistance is some way off at 1.5825-26. The 1.5541 trend low marks support ahead of 1.5500, while the August 2013 low at 1.5102 should be in the crosshairs of bears.

    [USD, CHF]
    EUR-CHF has been bumping along around the 1.2010 level, the upper level of the rumoured SNB buffer zone between here and the 1.2000 franc cap. SNB boss Jordan said last week that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary. 'Further steps' would likely centre on negative interest rates, which SNB member Zurbruegg recently argued would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. A Bloomberg survey last week found that more than 60% of respondents believe that the SNB will have to use negative interest rates to maintain the cap in the scenario that the ECB commences quantitative easing.

    [USD, CAD]
    USD-CAD logged new major-trend highs above 1.1600. Weaker than expected China manufacturing PMI data added to the CAN-bearish narrative as it suggests there is further scope for weakening oil price trend. We anticipate further advances. Support is marked at 1.1591-1.1600.

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