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By XE Market Analysis February 14, 2014 2:56 am
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    XE Market Analysis: Europe - Feb 14, 2014

    USD-JPY and yen crosses drifted lower, the AUD gave up early Sydney session gains, while EUR-USD pretty much flat-lined as the market consolidated yesterday's rally following a round of weakfish U.S. data. The main data releases in Asia were China inflation figures, which came in at 2.5% y/y, which didn't have much bearing on markets. A report in the official China Securities Journal said that economic growth will slow further this year, and that the risk of deflation is rising. Stocks in Asia were higher outside Japan, while in Japan the Nikkei-225 posted a 1.5% decline, which market commentaries are blaming for the pop higher in the yen. Blizzard conditions in Tokyo affected yen liquidity as many market participants didn't show for work. USD-JPY tumbled over 80 pips from the session high of 102.41 in making a 101.56 one-week low before settling around 101.80. Stop selling played a notably role in the thin conditions, with orders triggered through 102.00 and 101.70. AUD-USD reversed to sub-0.90 levels after peaking at 0.9026 after RBA's Kent said that a lower Australian dollar would aid a quicker return to trend growth. A IMF report had this week suggested that the Australian dollar should be weaker. In EUR-USD, good selling interest was continued to be reported into 1.3900.

    [EUR, USD]
    EUR-USD pretty much flat-lined as the market consolidated yesterday's rally following a round of weakish U.S. data. Good selling interest was continued to be reported into 1.3700. We still prefer selling EUR-USD into strength as prevailing levels are starting to look rich against fundamentals. The possible use of a negative deposit rate will likely remain a topic in ECBspeak, and we see that both the U.S. recovery and the Fed's tapering course as remaining on track. Resistance is marked at 1.3700-1.3712 (the latter being the Jan-27 high) and 1.3739 (the Jan-24 peak). Bigger picture, the multiple rejections from 1.38+ levels from last October had been associated with a notably drop in momentum following a six-month rally phase.

    [USD, JPY]
    USD-JPY and yen crosses drifted lower. Stocks in Asia were higher outside Japan, while in Japan the Nikkei-225 posted a 1.5% decline, which market commentaries are pinning for the pop higher in the yen. Blizzard conditions in Tokyo affected yen liquidity on Friday as many market participants didn't show for work. USD-JPY tumbled over 80 pips from the session high of 102.41 in making a 101.56 one-week low before settling around 101.80. Stop selling played a notably role in the thin conditions, with orders triggered through 102.00 and 101.70. USD-JPY resistance is marked by Tuesday's 10-day peak at 102.70. Major support comes in at 100.00-100.47, the latter of which is the 200-day moving average. Strong resistance can be expected at 103.00.

    [GBP, USD]
    Cable has rallied this week following the BoE's upgraded growth forecasts and introduction of "phase II" of forward guidance. Cable breached above the Jan-24 high of 1.6668 to a new major trend high of 1.6673. EUR-GBP fell toward January's one-year lows, though managed to find some support after testing 0.8200. We are wary about Cable's advance as the BoE isn't in any rush to tighten policy despite economic recovery with domestic pay awards remaining negative and inflation pressures waning. We also see both the U.S. recovery and the Fed's tapering course as remaining on track. We would recommend selling into 1.6680-1.6700, where market commentaries are reporting selling interest is residing.

    [USD, CHF]
    The CHF traded firmer in recent sessions as equities dipped. EUR-CHF fell to a one-week low of 1.2206. The cross had made a two-week high of 1.2267 earlier in the week as the Swiss currency unwound some of its safe haven premium, reflecting what had been a general recovery in stock markets. The Dec-17 cycle low of 1.2167 is now back in scope. SNB-speak last week affirmed that a removal of the 1.20 limit would only be considered if inflation was much higher had little impact. We wouldn't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    We continue to favour selling into USD-CAD gains as the price action from late January to early February confirmed a head-and-shoulders pattern topping formation. The recent run to a five-week peak of 1.1224 came with declining bullish momentum, which was a sign that the underlying trend was weakening. Projections target the 1.0800-1.0820 area. Initial resistance is at 1.10130-1.1050, while key resistance is marked at 1.1100, ahead of 1.1175 and 1.1200.

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