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By XE Market Analysis January 14, 2015 4:24 am
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    XE Market Analysis: Europe - Jan 14, 2015

    A big fall in copper prices drove the AUD and dollar bloc lower today. LME copper futures were showing 8%-plus losses at one point, apparently triggered by the World Bank cutting its 2015 global growth forecast. This also affected other commodity prices and equity markets, which in turn underpinned the yen, as per the currency's usual inverse correlation to big swings in risk appetite. USD-JPY dove to a one-month low of 116.74, making this the fourth consecutive down day, during which both the 20- and 50-day moving averages have been breached (the first time spot has been below these markers in three months). AUD-USD, meanwhile, dropped to a one-week low of 0.8068, bringing the Jan-7 four-year low at 0.8033 into scope. USD-CAD clocked to a new major-trend peak of 1.2017. NZD-USD was also lower. EUR-USD was relatively steady, trading marginally higher to the 1.1795 area.

    [EUR, USD]
    While the dollar has lost some traction as expectations of Fed tightening turn somewhat tentative, the market is still not keen on buying euros with the ECB expected to announce a QE program at the approaching Jan-22 council meeting. The Handelsblatt reported this week that a broad majority at ECB are in favour of sovereign bond purchases, ECB's Coere said that the central bank is ready to decide on bond purchases at the Jan-22 council meeting, and his colleague Nowotny said that the ECB should act sooner rather than later on the deflation risk. EUR-USD resistance is marked at 1.1871-75 and 1.1900, support 1.1750-55. We continue to see the pair as a sell-on-rallies trade.

    [USD, JPY]
    USD-JPY dove to a one-month low of 116.69, making this the fourth consecutive down day, during which both the 20- and 50-day moving averages have been breached (the first time spot has been below these markers in three months). A big fall in copper prices drove other commodities and equity markets lower, apparently triggered by the World Bank cutting its 2015 global growth forecast. This in turn underpinned the yen, as per the currency's usual inverse correlation to big swings in risk appetite. USD-JPY resistance is now marked at 117.50-55, and support is at 116.50. The Dec-16 low at 115.57 provides a focal point for bears.

    [GBP, USD]
    Cable has recovered above 1.5200 with the dollar having lost upside traction and corrected lower, with Treasury yields having dipped recently as Fed tightening prospects become more tentative. We still, however, see that sterling remains in the grip of a bear trend that's been persisting since July last year. An eventual test of 1.5000 still looks likely, 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 0.5%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee. Cable resistance is at 1.5274 (Jan-5 high), support at 1.5192-93 (recent daily highs).

    [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 clocked to a new major-trend peak of 1.2017. A big fall in copper prices drove other commodities and equity markets lower, apparently triggered by the World Bank cutting its 2015 global growth forecast. This in turn weighed on the commodity-correlating dollar-bloc currencies, including the CAD. Lower oil prices have the biggest driver of recent losses in the currency, as it blights Canada's terms of trade. NYMEX oil prices look set for a test of the 2009 low at $40.68, while the August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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