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By XE Market Analysis January 6, 2014 4:02 am
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    XE Market Analysis: Europe - Jan 06, 2014

    The JPY is moderately firmer on the first business in Japan in a week. EUR-JPY made a three-week low of 141.53, while USD-JPY is lowered versus Friday's New York closing level but has remained above its Friday low of 104.07. Most of the other dollar majors have been pretty steady, though sterling has been coming under some early-week pressure, with Cable testing 1.6350 and EUR-GBP nudging above 0.8300, though both have so far remained with their respective Friday ranges. The yen's gains correlated inversely with stock market losses, seen in Asia after a lacklustre China HSBC services PMI.

    [EUR, USD]
    EUR-USD rebounded above 1.3600 after extending to a new one-month low of 1.3571. An early session pop in short-end German yields helped the euro find a footing. EUR-JPY selling during the Tokyo session had earlier been a factor weighing on EUR-USD. An Asian sovereign account was reported to have been among those on the bid in EUR-USD. We don't expect EUR-JPY losses to sustain as the BoJ's aggressive policy stance will likely keep the yen in a bigger-picture downtrend, though we should point out that the risk to this view would be a period of sustained stock market losses. We remain bigger-picture bearish on EUR-USD as we have a dollar bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed's QE tapering decision. Resistance is marked at 1.3625 and 1.3650, the latter of which marks the present position of the 50-day moving average.

    [USD, JPY]
    The JPY is moderately firmer on the first business in Japan in a week. EUR-JPY made a three-week low of 141.53, while USD-JPY is lowered versus Friday's New York closing level but has remained above its Friday low of 104.07. The yen's gains correlated inversely with stock market losses, seen in Asia after a lacklustre China HSBC services PMI. We don't expect EUR-JPY losses to sustain as the BoJ's aggressive policy stance will likely keep the yen in a bigger-picture downtrend, though we should point out that the risk to this view would be a period of sustained stock market losses. USD-JPY support is marked at 104.00-104.05, which encompasses the present level of a two-month trend support line. Stronger support is marked at 103.40.

    [GBP, USD]
    Sterling has been in correction mode following a bullish period. Until recently the pound was being supported by differentials, with U.K. yields rising quicker than other G7 yields following a run of impressive U.K. data. Last week's unexpected dip in the manufacturing PMI provided a speed bump, though it doesn't change the overall positive outlook for the U.K. economy. Forward looking survey evidence, such as PMI order data and CBI industrial trends, along with recent lending figures and house prices data, are in the main pointing to continued robust economic expansion. There are caveats, and the main issue for U.K. policymakers is that recovery has been too much driven by rising consumption and household debt and not enough by capital investment and export success. Despite such concerns, we expect sterling to continue trending higher during the early part of 2014.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9000 and EUR-CHF breached above 1.2300 last week for the first time in a month, up from its pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. This reflects an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2320, support at 1.2250 and 1.2220.

    [USD, CAD]
    USD-CAD has seen some pretty choppy price action over the last several of weeks, spiking to a major-trend peak of 1.0737 on Dec-20, subsequently diving to sub-1.06 levels before steadying. Bigger picture, the pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0440). This conviction may have been strengthened by the repeated rejections from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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