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By XE Market Analysis December 23, 2013 3:17 am
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    XE Market Analysis: Europe - Dec 23, 2013

    Very little movement or activity have been seen in the pre-Europe session in Asia. Japan is closed today, and volumes will remains extremely thin until the new year. The main news developments was continued perkiness in China's month market rates, though Chinese and Hong Kong shares managed to lift from four-month lows on news that the Chinese central bank's put in $50 billion last week to interbank markets. The FT also reported that Beijing has ordered the media not to hype their reports about there being a liquidity crunch. There was little trading impetus in FX, however. The major dollar parings have seen very narrow ranges, USD-JPY centred has been centred around 104.00 and EUR-USD posting a 1.3667-95 range, consolidating the post-Fed, dollar strengthening move of last week.

    [EUR, USD]
    EUR-USD has settled in the upper 1.36s after logging a two-week low to 1.3625 on Friday. The new low had reflected a general bid tone in the USD. Decent selling interest has been reported in EUR-JPY, which is at near five-year high levels. EUR-USD's Dec-6 low of 1.3618 is the next support level, ahead of 1.3600. The 50-day moving average is situated at 1.3575. Resistance is at 1.3680 and 1.3700. Trade will now be very quite until the new year.

    [USD, JPY]
    USD-JPY has been trading near 104.00 in quite trade. Tokyo was closed today. We expect the yen to remain on a weakening path during the early part of 2014. Japanese policymakers are pursuing a weak sterling and there will be market concerns about the impact of the planned 8% rise in sales tax next April, to which the BoJ is expected to offset this by making further liquidity provisions. At its meeting last week, the central bank maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen, as had been widely expected. USD-JPY's major-trend peak at 104.63 and 104.50 are marked as resistance. We continue to target 105.00.

    [GBP, USD]
    We continue to target 1.6500 in Cable. Resistance is marked at 1.6400, support at 1.6320 and 1.6320. S&P last week affirmed the U.K. 's triple-A rating but kept a negative outlook, saying that the country would be vulnerable to a downgrade if growth was not sustained (the main risk to which stems from Eurozone). Cable has been in a bullish trend for six months, reflecting a trade-weighted appreciation of the currency over this time as U.K. recovery took hold. We anticipate more of the same during the early part of 2014. Forward looking survey evidence, such as from PMI order data, and the CBI industrial trends survey, strong mortgage lending figures (which signal house price potential two to four months down the track), support this view.

    [USD, CHF]
    The Swiss currency's safe haven premium has unwound some now that the period of Fed policy uncertainty is over. EUR-CHF breached above 1.2250 last week, well up on the pre-Fed eight-month low of 1.2166. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is now at 1.2220 and 1.2200. USD-CHF faces resistance at 0.9000, but can be expected to breach this over the coming sessions.

    [USD, CAD]
    USD-CAD settled back under 1.0700 after surging last week in the wake of the Fed's decision to commence tapering, breaking above the recent trend high of 1.0707 and rallying to a new three-year peak of 1.0727. Although the Fed upgraded dovish forward guidance to offset its tapering announcement, the Fed's stance contrasts the more dovish BoC. Initial USD-CAD support comes in at 1.0620 and 1.0600. The pair is looking stretched technically, which is to say by historical price deviations, so a bullish tactic would be to wait for near-support levels before entering a long position.

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