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By XE Market Analysis January 15, 2015 2:56 am
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    XE Market Analysis: Europe - Jan 15, 2015

    The dollar traded slightly firmer against the yen and euro, while lost ground to an outperforming Aussie dollar following a much better than expected Australian employment for December. AUD-USD rallied to a three-day peak of 0.8220, extending the recovery from yesterday's low at 0.8068 and contributing to a pretty choppy price action that's unfolded over the last 10 days. Australian employment rose 37.4k, well up on the expected 4.0k rise, and the unemployment rate tumbled to 6.1% from a revised 6.2% in November (was 6.3%). USD-JPY, meanwhile, lifted to a high of 117.94, two pips shy of yesterday's peak, extending the rebound from the low seen yesterday at 116.07. A 1.9% rebound in the Nikkei helped facilitate yen losses, while there was signs that 'Abenomics' policies remain alive and well with news that the BoJ is considering extending two lending programmes set to expire in March, according to Bloomberg sources. EUR-USD saw a slightly downside drift, returning to the 1.1760-70 area, remaining well within yesterday's range. Former BoE MPC member downplayed the dive in CPI to 0.5% by arguing that long-term price pressures may not be disinflationary in the UK, and that transitional and long-term factors must be distinguished between.

    [EUR, USD]
    EUR-USD saw a slightly downside drift, returning to the 1.1760-70 area, remaining well within yesterday's range but keeping yesterday's nine-year low at 1.1727 in range. Comments from the EU's top court on Wednesday suggested that the OMT (Outright Monetary Transactions) program is likely to be in line with the EU Treaty, which will give legal backing to Draghi's push for sovereign bond QE. Draghi himself also said that the ECB is ready to buy government bonds in an interview with Germany's Die Zeit, and markets are now pretty much fully factoring a QE announcement at the approaching Jan-22 council meeting, with the only question now being what magnitude it will be. EUR-USD remains a sell-on-rallies trade. Resistance is marked at 1.1800-13, support 1.1725-27 and 1.1700.

    [USD, JPY]
    USD-JPY has lifted to a high of 117.94, two pips shy of yesterday's peak, extending the rebound from the low seen yesterday at 116.07. A 1.9% rebound in the Nikkei helped facilitate yen losses, while there was signs that 'Abenomics' policies remain alive and well with news that the BoJ is considering extending two lending programmes set to expire in March, according to Bloomberg sources. USD-JPY resistance is marked at 117.96-118.00 and 118.51 (50-day moving average), and support is at 117.13-20.

    [GBP, USD]
    Sterling has established a firmer footing against both the dollar and the euro in recent days, with BoE Governor Carney and other MPC members downplaying the dive in headline CPI to 0.5% in December data. Former BoE MPC member Sentence today argued that long-term price pressures may not be disinflationary in the UK, and that transitional (ie oil prices) and long-term factors must be distinguished between. The fact that the December inflation report had also shown that the core measure of CPI had in fact ticked higher, to 1.3% y/y from 1.2% has also not been lost on markets. Cable support is marked at 1.5145-55, resistance at 1.5268-70 and 1.5300. The nearest moving average of note is the 20-day average at 1.5376.

    [USD, CHF]
    EUR-CHF continues to trade around the 1.2008-10 mark, with general euro weakness keeping the pressure on. 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 has consolidated in the mid-119s after clocking to a new major-trend peak of 1.2017 on Wednesday. Lower oil prices blights Canada's terms of trade, and NYMEX oil prices look set for a test of the 2009 low at $40.68. The August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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