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By XE Market Analysis July 4, 2014 2:56 am
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    XE Market Analysis: Europe - Jul 04, 2014

    A quiet session in pre-Europe Asia without much in the way of fresh data or other leads, which left the market to digest the stellar U.S. jobs report yesterday, which has seen some analysts (Barclays, for instance) to remark that Fed hikes are now closer. After diving to a one-week low at 1.3596 in the wake of the payrolls report yesterday, EUR-USD posted a flat-line consolidation around 1.3605-10. Sterling looked a little more lively, with Cable edging higher to 1.7179, one pip shy of Wednesday's six-year peak, while EUR-GBP logged a fresh 20-month low of 0.7921. The market, in our opinion, has been write to downplay the expectations miss in yesterday's services PMI, as the report still showed the sector to be expanding robustly, consistent with the BoE's newly adopted hawkish stance. USD-JPY corrected a portion of yesterday's post-U.S. jobs gains, and capped a three-day rally by ebbing back toward the 102.00 level. Japanese exporters were reported sellers, making the most of the two-week high levels. AUD-USD consolidated slightly higher, in the 0.9360s, after yesterday's post-RBA Stevens speech losses.

    [EUR, USD]
    EUR-USD steady so far today after declining concomitantly with a fresh widening in T-note v Bund yield differentials following the stellar U.S. jobs report. The differential made fresh cycle highs above 136 bp, about 10 bp up on levels seen earlier in the week. EUR-USD support at 1.3600-05 was breached, which encompassed the the 20-day moving average at 1.3604, though the Jun-26 low at 1.3575 has been left untroubled so far. The U.S. payrolls report underpinned the dollar generally, while an as-expected ECB announcement (aside from the shift to a six-week meeting schedule) itself, which left the door open to further monetary easing measures if they became necessary, had little impact, although euro's has softened against the euro, yen and other currencies as dollar bulls focus on the EUR-USD route. We expect EUR-USD to eventually move in on the May low at 1.3503.

    [USD, JPY]
    USD-JPY corrected a portion of yesterday's post-U.S. jobs gains, and capped a three-day rally by ebbing back toward the 102.00 level. Japanese exporters were reported sellers, making the most of the two-week high levels. 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]
    Cable edged higher to 1.7179 during pre-London trade in Asia, one pip shy of Wednesday's six-year peak, while EUR-GBP logged a fresh 20-month low of 0.7921. The market, in our opinion, has been write to downplay the expectations miss in yesterday's services PMI, as the report still showed the sector to be expanding robustly, consistent with the BoE's newly adopted hawkish stance. We have been targeting a big-picture Fibonacci retracement level in Cable at 1.7330, which is a 50% retracement level of the 2007 to 2009 decline. 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 clocked a new six-month low at 1.0620 on Thursday, which was the sixth consecutive lower low on the daily chart. The pair breached below the 200-day moving average at 1.0783 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 (last Friday's high) and 1.0700. Former congestion around 1.0580-1.0600 is support.

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