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By XE Market Analysis December 17, 2014 2:14 am
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    XE Market Analysis: Europe - Dec 17, 2014

    The Aussie dove to new trend lows with AUD-USD diving below 0.8200 and logging a four-year low at 0.8145. There didn't appear to be a catalyst, and stock markets and commodity prices were generally steadier in Asia-Pacific, though there remain concerns about the growth outlook in Asia and globally. The Asia Development Bank trimmed its growth forecast for the region to 6.1% from 6.2% for 2014 and to 6.2% from 6.4%. The NZD also traded lower after RBNZ's McDermott said that the exchange rates is still "unjustifiable" and "unsustainable." USD-JPY traded relatively steadily in Tokyo after yesterday's sharp decline to a 115.57 low and recovery to 117.76. Concerns that Russia might be headed for a default, similar to 1998 (the Russian central bank estimates that the economy will contract 4.6% in 2015 if oil prices stay at $60) should keep a USD-JPY a sell on rallies. The yen traded sharply higher during the 1997-1998 financial crisis period. EUR-USD sank back below 1.2500 after peaking yesterday at 1.2569. Market focus is now squaring on the FOMC announcement and press conference. We think the Fed will drop the "considerable time" phrase, though recent oil price declines may strengthen the dovish voice on the Committee.

    [EUR, USD]
    EUR-USD dipped back under 1.2500 today after rising above this level for the first time in nearly three weeks on Tuesday following an above-forecast Eurozone PMI data. As from the data influences, there has also been a dollar-negative narrative in markets that says the recent dive in oil prices will strengthen the voice of the doves at the Fed's FOMC this week (announcement Wednesday), though we still expect the "considerable time" phrase to be dropped. We still 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 1.2532 (50-day moving average, a breach of which yesterday failed to sustain) and 1.2569-75.

    [USD, JPY]
    USD-JPY traded relatively steadily in Tokyo on Wednesday after yesterday's sharp decline to a 115.57 low and recovery to 117.76. Concerns that Russia might be headed for a default, similar to 1998 (the Russian central bank estimates that the economy will contract 4.6% in 2015 if oil prices stay at $60) should keep a USD-JPY a sell on rallies. The yen traded sharply higher during the 1997-1998 financial crisis period. This backdrop puts our previously yen bearish view on hold as the currency has a historically strong inverse correlation with risk aversion in global financial markets. The drivers of this are twofold: one, yen-funded carry trades tend to be squared out during risk-off periods; two, some of the huge Japanese saving surplus that is invested abroad (in search of yield) came be repatriated during such phases.

    [GBP, USD]
    Cable trading broadly sideways, 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 1.5786-1.5800, with key resistance 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. U.K. November CPI came in much weaker than expected at 1.0%, the lowest since September 2002 and down on the median forecast for 1.2% and down from 1.3% in October.

    [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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