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By XE Market Analysis January 31, 2014 2:10 am
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    XE Market Analysis: Europe - Jan 31, 2014

    The EUR came under some pressure after the weaker than expected inflation number added to speculation of a rate cut by the ECB next week. Eurozone Jan HICP inflation unexpectedly fell to 0.7% y/y from 0.8% y/y in December. The Euro is also slightly weaker against the CHF and heading for its biggest monthly decline since March and the first loss since August against the USD, amid speculation of further easing measures. The USD remains supported by Fed policy tapering, though sharply lower U.S. equity futures and softer Treasury yields may dampen dollar gains this morning. Month end trade may result in choppy conditions.

    [EUR, USD]
    EUR-USD slowly drifted lower through the N.Y. session, moving into 1.3545, and within sight of the 1.3530 low posted on January 23. Buyers are reportedly lining up from there to 1.3500 now, while stops should be a factor under the figure, which could open the door for a move to 1.3400.

    [USD, JPY]
    USD-JPY managed to trade up near 102.90 on improved risk taking levels, though will remain vulnerable to any new emerging markets shocks. The 103+ level has not held up this week, which may result in some fading of further gains into month end.

    [GBP, USD]
    Cable was heavy over 1.6500 in early N.Y., and the pairing traded in lock-step with EUR-USD from there, easing back under 1.6475 before regaining some poise. Cable remains choppy, as it has been for some days now, and though cable longs dodged a bullet on Thursday, when the pairing held the 1.6450 region, a clear break there will likely bring sell-stops to bear.

    [USD, CHF]
    EUR-CHF rebounded over 1.2250 before settling down, largely as risk appetite came back to a degree through the N.Y. session. USD-CHF tested 0.9050 before pulling back modestly, though CHF direction will continue to be linked to risk levels, and more emerging market woes could see EUR-CHF back under 1.2200.

    [USD, CAD]
    USD-CAD pulled back from it new trend high of 1.1199 in North American trade, easing to 1.1160 in early Asia. Canadian GDO data later on Friday will be key for the CAD, where a disappointing print could bring 1.1200 barrier options into focus. A move over 1.1200 should result in stop loss related follow through toward 1.1250.

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