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By XE Market Analysis December 24, 2013 3:18 am
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    XE Market Analysis: Europe - Dec 24, 2013

    The JPY traded lower in otherwise pretty featureless trade. USD-JPY lifted to 104.41 during the Tokyo morning, with markets there reopening after yesterday's holiday and reacting to Friday's strong GDP data out of the U.S.. This prompted the Nikkei 225 equity index to rally, and it lifted above its 16k level for the first time since 2007, with the yen following its normal risk-on correlation by declining. USD-JPY soon ran out of steam, however, and last week's major-trend peak of 104.63 was left unchallenged and the pair settling back to sub-104.20 levels. Ditto for EUR-JPY and other yen crosses. EUR-USD continued its orbit around the 1.3700 level. Volumes have been ultra low this holiday. Tokyo will be the only major centre open tomorrow, though many Japanese corporations have wound-down ahead of holidays next week.

    [EUR, USD]
    EUR-USD has settled around 1.3700 after logging a two-week low to 1.3625 last Friday following the Fed's dollar supportive tapering announcement. Yen underperformance, meanwhile, has seen EUR-JPY remain well bid near five-year highs. 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]
    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 has settled around 1.0600 after some choppy price action after making a major-trend peak of 1.0737 last week. The pair had dipped to sub-1.06 levels on Monday's forecast-beating GDP data out of Canada, making one-week low of 1.0581 before finding a footing. The pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0420). This conviction may have been strengthened by the repeated U-turns lower from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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