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By XE Market Analysis December 22, 2014 3:21 am
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    XE Market Analysis: Europe - Dec 22, 2014

    2014 is quickly winding down, even as global events appear to be picking up steam and the last two trading weeks of the year will be short ones. Last week the Fed urged considerable patience with the policy normalization process, but we were clumsily informed the Fed's own patience would be finite - apparently the tightening launch is "at least a couple" (two) meetings away. The markets will remain focused on the plunge in oil prices and the myriad spillover effects on growth and inflation, which in turn are key for central bank decisions. The dollar appears set to end the year on a high note, with USD-JPY finding support over 119 last week, and EUR-USD poised for a run at the July 30, 2009 weekly low of 1.2134.

    [EUR, USD]
    The pairing later fell to new trend lows of 1.2223, taking out the December 8 low of 1.2248. The next downside target will be the July 30, 2009 weekly low of 1.2134. Given the time of year, and the accompanying lack of liquidity, the euro has a fair shot of hitting this target early next week. Especially if the risk backdrop remains buoyed, as it has been since the FOMC announcement on Wednesday.

    [USD, JPY]
    USD-JPY traded comfortably on the 119 handle, after touching 118.84 lows early in the session on reported profit taking interest. The pairing stalled into the December 11 high of 119.55, with further advancement from there likely to be a grind into noted exporter offers in place up to the 120 mark.

    [GBP, USD]
    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 1.5684 (20-day moving average) and 1.5700, support at 1.5500. The August 2013 low at 1.5102 should be in the crosshairs of bears. The drop in UK inflation to a six-year low of 1.0% has strengthened the dovish voices at the BoE's MPC.

    [USD, CHF]
    EUR-CHF has established a 1.2035-1.2050 range after spiking to a 1.2096 peak on Thursday after the SNB implemented a negative interest rate of -0.25%. SNB member Zurbruegg recently argued that a negative interest rate would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. SNB boss Jordan had 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.

    [USD, CAD]
    USD-CAD initially rallied to 1.1634 following the offsetting Canadian CPI and retail sales data, which revealed cooler inflation numbers and better than expected sales. The pairing had rallied to intra day highs of 1.1615 going into the data, and after the initial pop, returned back to the 15 level. WTI crude so far finds support under $55, with further gains keeping a lid on USD-CAD through the morning session. Oil touched highs over $57, as USD-CAD flat-lined between 1.1610-30 through the afternoon.

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