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By XE Market Analysis January 7, 2014 2:34 am
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    XE Market Analysis: Europe - Jan 07, 2014

    The USD is slightly firmer versus Monday's London closing levels, while the yen weakened after Japanese data . USD-JPY rebounded back above 104.50 after a brief dip under 104.00 during the New York afternoon session. EUR-JPY was also firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive the yen to fresh lows during the year. Meanwhile, EUR-USD ebbed to a low of 1.3610 after peaking at 1.3653. GBP-USD and AUD-USD saw a similar price action to EUR-USD. There were reports of model fund demand for greenbacks. Yellen was confirmed by the Senate as chairperson of the Fed, as anticipated (with the lowest support on record due to Republican opposition). Australia posted a smaller than expected trade deficit of A$111 mln, driven by a drop in imports.

    [EUR, USD]
    EUR-USD ebbed to a low of 1.3610 after peaking at 1.3653 amid reports of model fund demand for greenbacks. EUR-JPY was firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive EUR-JPY higher during the year. There is speculation that the ECB might announce fresh stimulus at its policy meeting this Thursday, which should keep EUR-USD capped in the interim. 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 1.3650-60, which contains the present position of the 50-day moving average.

    [USD, JPY]
    USD-JPY rebounded back above 104.50 after a brief dip under 104.00 during the New York afternoon session. EUR-JPY was also firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive the yen to fresh lows during the year.

    [GBP, USD]
    Sterling has been consolidating around 1.6400 following its rally to 1.6603 that was seen on Jan-2, capping a six-month uptrend. 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. However, softer than expected PMI data provided a speed bump with regard to economic expectations, though it doesn't change the overall positive outlook for the U.K. economy, and a moderation was to be expected after a period of above long-term trend growth. Cable support is marked at 1.6345-1.6350 ahead of 1.6300, resistance at 1.6320. We remain sterling bullish, but would advise taking the GBP-JPY route.

    [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 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 1.2350, support at 1.2320 and 1.2300.

    [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-1.0600 levels before steadying back on a 1.06 handle. 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 1.0452). 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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