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By XE Market Analysis February 28, 2014 3:11 am
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    XE Market Analysis: Europe - Feb 28, 2014

    The CNY posted its biggest one-day loss versus the USD as the PBoC guided the currency lower for a ninth consecutive day, while the JPY rose across the board following a mostly above expectations set of data that may reduce expectations of the BoJ taking further easing measures this year. USD-JPY ebbed to a 10-day low of 101.55 and EUR-JPY to a two-week low of 138.79. Elsewhere, the NZD popped higher on a much stronger than expected business confidence report out of New Zealand. The Kiwi's rally seemed to inspire a sympathetic bid in AUD-USD, which rose above its Thursday high to a peak of 0.8989 before giving up the chance and settling lower. Stock markets were mixed-to-lower in Asia, while the broad MSCI regional index showing a modest 0.1% loss as of the late PM in Tokyo. The situation in the Ukraine remains tense, with armed pro-Russian personnel still stationed at key buildings in Crimea. GBP was unmoved by either an as-expected Gfk consumer confidence figure nor by a remark from BoE's Dale, who said that the MPC members opinions may start to diverge on policy as the economy recovers.

    [EUR, USD]
    EUR-USD recovered the 1.37 handle in early London trade after dropping to two-week lows just under 1.3650 yesterday. The rebound seems to have been inspired by the fact that Russia seems to be showing restraint with regard to the unfolding situation in Ukraine. European stock futures traded higher ahead of the open for the same reason. Geo-political considerations aside, we continue to anticipate a period of sustained EUR-USD declines as we think the Fed will remain on its tapering course while the pressure on the ECB to tack action to head of the risk of deflation has been growing. Technically, the EUR-USD picture has been looking bearish too. A two-week run higher to last week's peak of 1.3773 stalled shy of 1.3800, and this follows multiple rejections from 1.38+ levels over the October to December period. Over this period there had also been a drop in upside momentum following a six-month rally phase. We target 1.3600 initially.

    [USD, JPY]
    The JPY rose across the board following a mostly above expectations set of data that may reduce expectations of the BoJ taking further easing measures this year. USD-JPY ebbed to a 10-day low of 101.55 and EUR-JPY to a two-week low of 138.79. Bigger picture, there still remains muted directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown (and now geopolitical tensions), with the associated negative consequences on global stock markets, is an offsetting yen-supportive force. The 102.00 level has now reverted as near-term resistance, ahead of 102.50 and last Friday's three-week peak at 102.83. Support is at 101.50, ahead of major support at 100.00-100.80, the latter of which is the 200-day moving average.

    [GBP, USD]
    GBP was unmoved by either an as-expected Gfk consumer confidence figure nor by a remark from BoE's Dale, who said that the MPC members opinions may start to diverge on policy as the economy recovers. Sterling has been steady-to-firm versus the USD this week while moderately firmer against the EUR. Dovish BoE-speak this week hasn't had much impact. In the bigger picture, Cable's price action has turned flat-to-lower after reaching a major trend peak of 1.6822 on Feb-17. We have been favouring a bearish view as we see the Fed as remaining on its tapering course while the BoE has expressed concern about the level of sterling, which seems to have been indirectly referenced by a bout of dovish BoE-speak. Support is marked at 1.6645-50, resistance is pegged at 1.6725-30.

    [USD, CHF]
    EUR-CHF fell to a 1.2157 low after breaking below the Dec-17 cycle low of 1.2167, taking the cross to its lowest levels since April last year. The Swiss currency is following its usual outperforming pattern during periods of risk aversion, this time with market confidence shaken by the unravelling Ukraine situation and associated concern of broader geopolitical tensions. SNB-speak this month reaffirmed its 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.

    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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