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By XE Market Analysis January 13, 2015 3:23 am
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    XE Market Analysis: Europe - Jan 13, 2015

    USD-JPY rebounded from a one-month low at 117.73, rising over a big figure to 118.85 before stalling, subsequently drifting back to the 118.50 area. A fresh five-year low in oil prices (NYMEX crude fell below $45) and generally lower stock markets weighed on the yen during the early part of Tokyo trade, before dollar buying kicked in. Good Chinese trade data, with the December balance rising to $ 49.6bn, helped lift the mood in stock markets. ECB's Coere suggested that the ECB is ready to decide on bond purchases at next week's council meeting, which gave the dollar some support via EUR-USD, which dipped to a 1.1819 low before rebounding to the 1.1840 area. SNB's Danthine said the obvious, that a ECB QE program would make it difficult to defend the franc cap in EUR-CHF. The UK's BRC December retail like-for-like sales was a miss at -0.4%, which should Cable under pressure during London trade.

    [EUR, USD]
    EUR-USD is trading relatively steady after making a nine-year low at 1.1754 last week. This is part reflects a decline in the dollar's yield advantage over the euro, which has ebbed to around 142 bp at the 10-year bond yield level versus the Bund, down from 145 bp yesterday and levels around 165 bp that were seen a couple of weeks ago. This in turn reflects more tentative expectations for the Fed to commence tightening as soon as mid-year. This said, we expect the euro to remain a sell-on-rallies trade, with the dollar likely to benefit from a favourable economic growth differential over time. The Handelsblatt also reported this week that a broad majority at ECB are in favour of sovereign bond purchases, and ECB's Coere said today that the central bank is ready to decide on bond purchases at the Jan-22 council meeting. EUR-USD resistance is marked at 1.1871-75 and 1.1900, support 1.1780-86.

    [USD, JPY]
    USD-JPY rebounded from a one-month low at 117.73, rising over a big figure to 118.85 before stalling, subsequently drifting back to the 118.50 area. A fresh five-year low in oil prices (NYMEX crude fell below $45) and generally lower stock markets weighed on the yen during the early part of Tokyo trade, before dollar buying kicked in. Good Chinese trade data, with the December balance rising to $ 49.6bn, helped lift the mood in stock markets. USD-JPY has been trending broadly sideways since making a seven-year peak at 121.85 on Dec-8. We remain bullish, however, with 'Abenomics' policies likely to maintain the dollar's yield advantage over the yen, even if Fed tightening prospects remain tentative. USD-JPY resistance is marked by former range lows at 119.96-120.09, and support is at 117.70-75.

    [GBP, USD]
    Sterling remains in the grip of a bear trend that's been persisting since July last year. A test of 1.5000 looks just a matter of time, reportedly a big option level with large sell-orders below. The sharp drop in the UK December composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of 1.0%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee. Cable resistance is at 1.5193-1.5200, support at 1.5034-5.

    [USD, CHF]
    EUR-CHF has come under fresh pressure in recent days, once again amid general euro weakness. Swiss foreign currency reserves data for December last week showed reserves rose to CHF 495.1 bln (a record) from CHF 462.7 bln in November, which is a consequence of the SNB's intervention on Dec-18. The intervention was additional to the implementation of a negative deposit rate, which was cut to -0.25%, also on Dec-18. The rouble crisis and euro weakness saw EUR-CHF come under pressure in December, and on Dec-16 the cross came within six pips of SNB's the 1.2000 limit. The cross spiked to 1.2096 on Dec-18 on the intervention, along with the announcement of the negative deposit rate. This was the first time that the SNB has intervened in spot since 2012. With the ECB set to pursue QE, the SNB will have its work cut out to defend 1.2000 during the first half of 2015.

    [USD, CAD]
    USD-CAD remains broadly underpinned, making a fresh trend high at 1.1979. Oil prices at new five-year low, below $45 in front-month NYMEX futures, which are blighting Canada's terms of trade and keeping the pressure on the loonie. Oil prices look set for a test of the 2009 low at $49.68, while the August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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