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By XE Market Analysis July 1, 2014 2:52 am
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    XE Market Analysis: Europe - Jul 01, 2014

    USD-JPY posted a near 25 pip rally to 101.53 intraday high after the Tankan survey headline disappointed with confidence among large manufacturers falling to 12 in June from 17 in March. Capex plans were better, however, with big manufacturers expecting business conditions to improve three months ahead, and are planning to boost capital spending by 7.4% in the current fiscal year. The final June PMI readings out of China, meanwhile, matched expectations, at 51.0 for the official release and 50.7 for the HSBC-Markit version. Elsewhere, EUR-USD remained within 1.3680-95, consolidating yesterday's rally to a six-week high at 1.3698. The RBA left rates on hold, as widely anticipated, and the statement was largely unchanged from April, with the high AUD, tight fiscal policy and a slowdown in mining investment serving to justify leaving the key rate at a record low of 2.5%. AUD-USD rose to a new trend high despite this, making 0.9463, breaching the Apr-10 peak. A Citi research note caught market attention as it argued that the RBA has a very high "pain threshold" in tolerating a high AUD.

    [EUR, USD]
    EUR-USD remained within 1.3680-95 during pre-London Asian trade, consolidating yesterday's rally to a six-week high at 1.3698. The rally yesterday was fuelled by short-squaring amid a fading hope for the ECB asset purchases. The move broke -USD resistance at 1.3674-77, which encompassed the 200-day moving average and the Jun-6 peak, and these levels now revert as supports. The 10-year T-note over Bund yield spread has remained steady over the last week or so, around the 127-128 bp mark, and we would probably need to see a move beyond 130 bp and into fresh long-term high territory to prompt a fresh EUR-USD down-leg. With month-end out of the way, and the speculative market now positioned more neutrally, we would expect EUR-USD to start meeting better selling interest into gains. Resistance is at 1.3698-3700, and 1.3723 (the May-21 high).
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    [USD, JPY]
    USD-JPY posted a near 25 pip rally to 101.53 intraday high after the Tankan survey headline disappointed with confidence among large manufacturers falling to 12 in June from 17 in March. Capex plans were better, however, with big manufacturers expecting business conditions to improve three months ahead, and are planning to boost capital spending by 7.4% in the current fiscal year. The final June PMI readings out of China, meanwhile, matched expectations, at 51.0 for the official release and 50.7 for the HSBC-Markit version. Bigger picture, USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    We remain sterling bullish with the BoE having left the hawkish starting gates ahead of the Fed and ECB. BoE's Bean said over the weekend that market expectations of a rise in interest rates at the turn of the year are "reasonable." A big-picture Fibonacci retracement level at 1.7330, which is a 50% retracement level of the 2007 to 2009 decline, provides bulls with a target. Our EUR-GBP target is provided by the major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF breached below 1.2150 as the situations in Iraq and Ukraine continues to underpin the Swiss currency's safe-haven premium. Technically, the break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, but so far have remain unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD logged a fresh six-month low at 1.0647. The pair breached below the 200-day moving average at 1.0783 early last week and has been trending lower since. The move reflects a broad dollar-bloc bid that was initially sparked by much stronger than expected PMI data out of China and Japan, which has underpinned the commodity-correlating currencies as investors adjust a more optimistic world outlook. The BoC is also under pressure to reconsider its dovish policy stance. Resistance is pegged at 1.6996 (Friday's high) and 1.0700.

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