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By XE Market Analysis February 24, 2014 3:07 am
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    XE Market Analysis: Europe - Feb 24, 2014

    Yen firmness was the main theme among the major currencies, inversely correlating, as usual, with the Nikkei and broadly lower stock markets in Asia today (MSCI Asia Pacific down over 0.5%, Shanghai Composite down over 2%). This followed news out of China that property loans have dropped. This also led to some weakness in the AUD. The G20 final communique was pretty boilerplate and didn't have market impact, stating that nations will "develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2% above the trajectory implied by current policies over the coming five years." Moody's upgraded its sovereign rating for Spain, to Baa2 (from Baa3), assigning a positive outlook, though EUR-USD remain unstirred in a narrow range in the low-to-mid 1.37s. USD-JPY sank from the 102.60s to a low of 102.16 before settling around 102.30. A Rueters survey found market analysts expecting the BoJ to increase asset purchases by mid-year following April's sales tax increase, though this didn't cause much market impact with the focus remaining more on the bearish stock market session today. AUD-USD dipped to a five-day low of 0.8938. Sterling was perky in Asia, which saw Cable climb to the 1.6650 area, recovering to near Friday's London closing level having opening in Asia at 1.6616. .

    [EUR, USD]
    EUR-USD has continued in fairy steady trade in the 1.37s. We continue to anticipate further EUR-USD weakness. Pressure on the ECB to take further monetary action into its March policy meeting has been growing Eurozone PMI data that showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly, coming amid a backdrop of disinflation. The possibility of introducing a negative deposit rate be a topic in ECBspeadk into next month's policy meet. Technically, the EUR-USD picture looks bearish. A two-week run higher to last Tuesday's peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period, which had been associated with a notable drop in upside momentum following a six-month rally phase.

    [USD, JPY]
    Yen firmness was the main theme among the major currencies, inversely correlating, as usual, with the Nikkei and broadly lower stock markets in Asia today (MSCI Asia Pacific down over 0.5%, Shanghai Composite down over 2%). This followed news out of China that property loans have dropped. USD-JPY sank from the 102.60s to a low of 102.16 before settling around 102.30. A Rueters survey found market analysts expecting the BoJ to increase asset purchases by mid-year following April's sales tax increase, though this didn't cause much market impact with the focus remaining more on the bearish stock market session today. In the bigger picture there is little overall directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown and its negative consequences on global stock markets is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83, ahead of 103.00-103.10, which encompasses the 50-day moving average. Support is at 102.00 and 101.66, ahead of major support at 100.00-100.71, the latter of which is the 200-day moving average.

    [GBP, USD]
    Sterling was perky in Asia, which saw Cable climb to the 1.6650 area, recovering to near Friday's London closing level having opening in Asia at 1.6616. We anticipate further sterling underperformance in the period ahead. The unexpected pop in unemployment to 7.2% from 7.1% and the dip in January CPI to a new cycle low of 1.9% y/y supports the BoE's prevailing dovish policy stance. We anticipate incoming data will show recovery momentum to be decelerating, and signs of the recent weather impact are likely to start appears in data too. Cable support is at 1.6625-1.6600. Resistance at 1.6700-25 and 1.6740. Cable met good selling around 1.6700-25 last week.

    [USD, CHF]
    EUR-CHF has drifted to sub-1.220 levels amid a backdrop of risk aversion in global markets, which is supporting the safe-haven Swiss currency. Signs of China slowing has been in the principle culprit (disappointing PMI and news of slowing property loans), while the situation in the Ukraine has been another. The recent break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope. SNB-speak this month reaffirmed the strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD capped out just shy of 1.1200 on Friday after a perkier than anticipated outcome in Canadian CPI data, which undermined BoC easing expectations. On balance, the risks remain to the upside as the growing signs of China slowing may weigh on the commodity currency bloc. The Jan-31 major-trend peak at 1.1224 is a key level now, while good selling interest is likely into 1.1200 too. Support comes in at 1.1100, ahead of 1.1035.

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