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By XE Market Analysis December 23, 2014 1:23 am
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    XE Market Analysis: Europe - Dec 23, 2014

    Activity should remain relatively muted through the European session, as markets gear up for a short Friday session, followed by a four-day weekend for most participants. The European calendar consists mostly of GDP revisions and spending data, which aren't likely to stir things up too much. EUR-USD remains on the brink however, and thin markets could push the euro to fresh trend lows, with the target being the July 30, 2012 weekly low of 1.2134. The dollar in general looks primed for further gains into year-end, with USD-JPY breaching the key 120 level, and cable testing the waters under 1.5600.

    [EUR, USD]
    The pairing later fell to new trend lows of 1.2220 on Monday, 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 this week. Especially if the risk backdrop remains buoyed, as it has been since the FOMC announcement on Wednesday.

    [USD, JPY]
    USD-JPY traded over the key 120 mark in early Asian dealings, touching levels last seen in July of 2007. It could be a tough haul higher however, with Japanese exporter offers seen lined up to 120.50. The post-FOMC risk backdrop has been supportive of the dollar overall, and should the pairing be able to hold on to 120 in the near term, further gains may be in the cards.

    [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 has been buoyed by Monday's sharp oil price declines, though needs to trade over 1.1680 to confirm the recent upside bias. There has been speculation that offers related to the Repsol purchase of Canada's Talisman continue to cap USD-CAD.

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