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By XE Market Analysis December 17, 2013 2:41 am
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    XE Market Analysis: Europe - Dec 17, 2013

    Not much movement has been seen in pre-European Asia trade. USD-JPY at 102.96 bid is within a few pips of yesterday's London closing level, having posted a sub-20 pip range in the interim. A rebound in Asia stock markets, with the MSCI Asia Pacific lifting 0.5% from three-month lows, failed to inspire selling of the fund-currency yen or buying of the asset-currency Australian dollar. The AUD was moderately net lower at just under 0.8950 after a somewhat choppy session. Yesterday's 0.8920 low and last week's three-month low of 0.8909 remained unchallenged. Domestic developments were bearish for the Aussie, with the release of the RBA minutes and the government's mid-fiscal update relieving a big upward revision in the deficit projection for 2013-14, to A47.0 bln from A30.1 bln, largely as expected but a development that may invite some score from the rating agencies. EUR-USD is fractionally firmer at 1.3771 bid, with the pair remaining entrenched at familiar consolidation levels that have been in play for a week now. A series of rejections from near 1.3800 levels has made this a psychological resistance level.

    [EUR, USD]
    EUR-USD is fractionally firmer at 1.3771 bid, with the pair remaining entrenched at familiar consolidation levels that have been in play for a week now. A series of rejections from near 1.3800 levels has made this a psychological resistance level. The three-day low of 1.3709 on Friday has since remained untroubled, however, 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 this week's FOMC.

    [USD, JPY]
    USD-JPY remained near 103.00 level in pre-London Asia trade, having posted a sub-20 pip range in the interim. A rebound in Asia stock markets, with the MSCI Asia Pacific lifting 0.5% from three-month lows, failed to inspire selling of the fund-currency yen (or buying of the asset-currency Australian dollar). The pair remains in consolidation after posting a multi-year high of 103.92 on Friday. The pull-back low of 102.64 is marked as a support level, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. The same trend support now come in at 102.80. A breach of these levels would present the Dec-11 of 102.15 as the next correction target. EUR-JPY and other yen crosses have been seeing a similar price action.

    [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. This week's U.K. data should affirm this picture. 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 to a 1.0669 peak last 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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