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By XE Market Analysis February 25, 2014 2:38 am
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    XE Market Analysis: Europe - Feb 25, 2014

    Very little direction has been seen among the main currencies during the Asia session so far. EUR-USD flat-lined within around 1.3729-45, USD-JPY did likewise around 102.50, and AUD-USD saw nothing more than a moderate oscillation around 0.9030. Stock markets in Asia rose following a positive close on Wall Street. From the data and news fronts, Japan's Corporate Service Price Index for January came in at +0.8% y/y, below expectations for +1.2%, new Italian PM Renzi won a confidence vote, and the Australia ANZ Roy-Morgan weekly consumer confidence came in at -1.6% w/w. In China, the PBoC guided USD-CNY to its biggest daily gain in two years, to 6.1200. The received wisdom here is that Chinese policymaker are desiring are aiming to reduce the perceived one-way bet the CNY appreciation trend has become, which is part of its efforts to reduce liquidity in the system.

    [EUR, USD]
    EUR-USD has continued to oscillate 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 week'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]
    USD-JPY has been steady around 102.50, unmoved by Japan's Corporate Service Price Index for January coming in at +0.8% y/y, below expectations for +1.2%, not a 1.4% closing gain in the Nikkei stock index. 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 has established a firmer underpinning from a subtle change in some BoE MPC members' language, with both Weale and Broadbent having remarked in recent days that wages should start rising this year. Governor Carney, on the other hand, has stuck to the boilerplate "we will not take risks with the recovery," in remarks he made from the G20 meeting in Sydney. Nonetheless, the apparent shift in tone by some members has support sterling. We don't advise taking a bullish view, however, as 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 in the latter part of last week, and the same again would likely be seen if these levels are tested..

    [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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