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By XE Market Analysis January 5, 2015 3:41 am
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    XE Market Analysis: Europe - Jan 05, 2015

    EUR-USD crashed through 1.2000 and logged a four-and-a-half year low at 1.1873, which according to our data matches the June 2010 low. A flood of sell-stop orders were triggered below 1.2000. The euro also lost ground to the yen and sterling, among other currencies. GBP-USD and AUD-USD saw a similar price action to EUR-USD, though the magnitude of movement was less acute. USD-JPY, meanwhile, was comparatively stable, lifting from an early Tokyo dip under 120.00, subsequently rising to a peak of 120.64 before ebbing back to near net unchanged levels on the day, around 120.40. Oil prices once again came under pressure, with the NYMEX front-month future making a fresh five-year lows under $52.

    [EUR, USD]
    We remain EUR-USD bearish. Our long-standing target at the July 2012 low at 1.2042 was meet on Friday and today the June 2010 lows at 1.1873-75 were tested. There has been a fresh shift in the dollar's yield advantage over the last week with 10-year U.S. T-note yield differential over the equivalent bund widened over the last week to new cycle highs near 165 bp, up from levels around 147-48 bp seen before the Fed announcement on Dec-17. The market, meanwhile, is speculating that the ECB will announce QE at its Jan-22 policy meeting, with concerns about disinflation outweighing the recent improvement in survey data. EUR-USD resistance is marked at 1.2000, support at 1.1873-75.

    [USD, JPY]
    We remain USD-JPY bullish with 'Abenomics' policies likely to maintain the dollar's yield advantage over the yen, even if Fed tightening prospects remain tentative. USD-JPY support is marked by former range lows at 119.96-120.09, and resistance is marked by recent range highs at 1.2073-82.

    [GBP, USD]
    Cable remains in the grip of a bear trend, which has been persisting since the July cycle high at 1.7192 and has accelerated in early new year trade. Resistance is now marked at 1.5400, support at 1.5160-63. The August 2013 low at 1.5102 has been in the crosshairs of bears. The drop in UK inflation to a six-year low of 1.0% has strengthened the dovish voices at the BoE's MPC.

    [USD, CHF]
    EUR-CHF has established a range below 1.2050 after spiking to a 1.2096 peak Dec-18 after the SNB implemented a negative interest rate of -0.25%. SNB member Zurbruegg recently argued that a negative interest rate would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. SNB boss Jordan had said recently that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary.

    [USD, CAD]
    USD-CAD punched out new trend highs above 1.1800 as oil prices sank to fresh five-year lows under $52. The August 2009 high at 1.3063 is being talked about as the next big-picture target in markets.

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