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By XE Market Analysis July 2, 2014 2:23 am
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    XE Market Analysis: Europe - Jul 02, 2014

    The AUD lost some of its shine on ugly trade data out of Australia, which saw AUD-USD tip over 40 pips lower to the 0.9450-60 region. Australia's trade deficit widened to A$1.9 bln in May, a larger shortfall than anticipated after the sharply revised A$780 mln deficit in April (was -A$122 mln). Exports were down 4.6% m/m in May after a 2.2% decline in April. The figures prompted Westpac to estimate that Australia's terms of trade fell by 3.7% in Q2, expecting net exports to be broadly neutral for economic growth in Q2 after contributing 1.4ppts in Q1, but stressing that the risks are to the downside. Moody's also said that Australia will see a fall in private capex. Elsewhere, USD-JPY ground out a three-day high of 101.65, though the Tokyo range barely exceeded 15 pips. This extended the gain see after the weak set of data out of Japan earlier in the week, while a backdrop of mostly higher stocks in Asia was also conducive of a softer yen. EUR-USD came under modest pressure, dipping to the 1.3670 area after closing in London yesterday at 1.3682. The 10-year T-note over Bund yield spread extended further into long-term wide territory, indicated at 131.7 bp, out from the 127-128 bp levels seen earlier in the week.

    [EUR, USD]
    EUR-USD came under modest pressure in Asia, dipping to the 1.3670 area after closing in London yesterday at 1.3682. Following some Eurozone data disappointments this week, the 10-year T-note over Bund yield spread extended further into long-term wide territory, indicated at 131.7 bp, out from the 127-128 bp levels seen earlier in the week. This should feed a EUR-USD downward bias into Thursday' ECB meeting and Friday's U.S. payrolls report, which we expect to provide bears with fresh fodder. EUR-USD resistance is at 1.3698-3700, and 1.3723 (the May-21 high), support at 1.3650.

    [USD, JPY]
    USD-JPY ground out a three-day high of 101.65, though the Tokyo range barely exceeded 15 pips. This extended the gain see after the weak set of data out of Japan earlier in the week, while a backdrop of mostly higher stocks in Asia was also conducive of a softer yen. 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. The BoE's stance has been backed-up by a solid manufacturing PMI report for June. 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 1.2150 this week and extended to a 1.2133 three-and-a-half month low, 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, so far remaining 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 1.0628. This makes it the fifth consecutive lower low on the daily chart. 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. Former congestion around 1.0580-1.0600 is support.

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