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By XE Market Analysis January 16, 2015 2:58 am
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    XE Market Analysis: Europe - Jan 16, 2015

    The dollar has been steady-to-softer during pre-European trade in Asia. USD-JPY has been an exception as it is moderately net firmer after rebounding from a fresh one-month low at 115.84 to a peak of 116.83, subsequently settling around the 116.50-60 area. There was talk that Japanese pensions funds were seen buying USD-JPY, while a rebound from lows in the Nikkei-225 (which closed 1.4% for the worse after showing a 3% decline at the intraday lows) was also conducive for a correction in the yen. Elsewhere, EUR-USD traded a 1.1600-1.1646 range, opening in London near the latter. AUD-USD recovered above 0.8200 after dipping to a low of 0.8184, even though the Austrian 10-year benchmark yield fell to record lows below 2.5%. In data and news, two Greek banks have reportedly submitted requests for emergency liquidity assistance, while Japan's tertiary (service sector) index rose 0.2% m/m in November from an upwardly revised -0.1% m/m in October.

    [EUR, USD]
    EUR-USD steadier today after yesterday's SNB induced sharp bout of volatility, trading a 1.1600-1.1646 range, opening in London near the latter. We expect EUR-USD will remain biased lower now that one of the big buyers of euros has exited the market. Markets are also pretty much fully factoring a QE announcement from the ECB at its approaching Jan-22 council meeting, with the only question now being what magnitude it will be (though generally expected at the EUR 500-600 bln mark). We anticipate sub-1.1500 levels will be seen over the coming week. Resistance is marked at 1.1700, support 1.1600 and 1.1567-70.

    [USD, JPY]
    USD-JPY rebounded from a fresh one-month low at 115.84 to a peak of 116.83, subsequently settling around the 116.50-60 area. There was talk that Japanese pensions funds were seen buying USD-JPY, while a rebound from lows in the Nikkei-225 (which closed 1.4% for the worse after showing a 3% decline at the intraday lows) was also conducive for a correction in the yen. We expect downside potential will be limited in the bigger picture as 'Abenomics' policies remain alive and well in Japan. Support is at 115.84 and 115.57-60 (which encompasses the Dec-16 low), resistance at 116.83-85 and 117.00.

    [GBP, USD]
    Sterling has traded mixed over the last day, having soared to near six-year highs against the euro, which had the SNB's supporting rug dramatically pulled from under its feet, while ebbing lower against the dollar. We remain bearish of Cable, despite BoE MPC members' efforts to downplay the dive in UK December CPI to 0.5% y/y. 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 1.5353.

    [USD, CHF]
    Trading in the CHF remains illiquid and somewhat erratic after the SNB unexpectedly abandoned the franc cap on Thursday. With the ECB set to pursue QE, it was always going to be a tall order for the SNB to defend 1.2000. The SNB also lowered the sight deposit rate to -0.75% form -0.25 % and the target range for 3-month Libor to between -1.25% and -0.25% from the current range of between -0.75% and 0.25%. The SNB said, "while the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate," and that "the economy was able to take advantage of this phase to adjust to the new situation".

    [USD, CAD]
    USD-CAD has returned to consolidation in the mid-119s after briefly dipping to a 1.1802 low and then rebounding on Thursday as a consequence of forex market volatility after the SNB threw in the towel with its franc cap. The major-trend peak of 1.2017 that was seen on Wednesday remains in scope. Lower oil prices are blighting 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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