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By XE Market Analysis June 1, 2015 3:17 am
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    XE Market Analysis: Europe - Jun 01, 2015

    EUR-USD is lower today after three successive up days, through to Friday when a high was left at 1.1006. The pair has today drifted to the mid-1.09s. We expect EUR-USD to retain a downside bias. There has been no change in the dominant bearish narrative that drove the pair some 4% lower during the latter half of May, after making a three-month peak of 1.1486 on May-15: the continued lack of substantive progress in Greece's bailout negotiations, and the rekindled Fed tightening theme. USD-JPY recovered above 124.00 but last Thursday's major-trend high at 124.46 has remained unchallenged. There continues to be market talk of big selling interest into 124.50, which is also said to the strike of large options that are expiring today and through the week. Sterling is trading a little firmer in early-week trade after underperforming last week. The CBI reported that the private sector is growing at the briskest pace in year. Cable has settled near 1.5300 after posting a lower low on every day last week, while EUR-GBP has come off Friday's 11-day high at 0.7201.

    [EUR, USD]
    EUR-USD is lower today after three successive up days, through to Friday when a high was left at 1.1006. The pair has today drifted to the mid-1.09s. We expect EUR-USD to retain a downside bias. There has been no change in the dominant bearish narrative that drove the pair some 4% lower during the latter half of May, after making a three-month peak of 1.1486 on May-15: the continued lack of substantive progress in Greece's bailout negotiations, and the rekindled Fed tightening theme. This week will be a key one with regard to the latter theme as there is a slate of important U.S. data releases, culminating in the May payrolls report on Friday, which we think will collectively maintain September as a potential data for the Fed to hike.

    [USD, JPY]
    USD-JPY recovered above 124.00 but last Thursday's major-trend high at 124.46 has remained unchallenged. There continues to be market talk of big selling interest into 124.50, which is also said to the strike of large options that are expiring today and through the week. BoJ policymakers have recently indicated there is no need for further easing, but the slowing Tokyo CPI to 0.5% y/y from 0.7% y/y and the mixed domestic growth figures suggest that more easing will eventually be needed. The bottom line for USD-JPY is that ultra-loose 'Abecomics' monetary policies are likely to be remaining in force when the Fed eventually does reach rate hike lift-off.

    [GBP, USD]
    Sterling is trading a little firmer in early-week trade after underperforming last week. The CBI reported that the private sector is growing at the briskest pace in year. Cable has settled near 1.5300 after posting a lower low on every day last week, while EUR-GBP has come off Friday's 11-day high at 0.7201. The pound came under pressure last week as the EU membership debate created uncertainties for long-term investors, while there were some relatively disappointing data out of the UK this week, with the Gfk consumer confidence for May diving to +1 from April's +4, and the second estimate of UK Q1 GDP was left unrevised at 0.1% q/q and 2.4% y/y, contrary to expectations for a one basis point revision on both counts. This week's May PMI surveys should restore a more upbeat sentiment on the economy. We anticipate sterling will trade mixed.

    [USD, CHF]
    EUR-CHF has re-established itself below 1.0400 following broad euro declines during the latter half of May. Swiss policymakers remain in a fight to curtail EUR-CHF's downside, with SNB chairman Jordan over the weekend once again threatening intervention if necessary. SNB's Zurbrugg said in May that negative rates in force for as long as policy requires. The central bank in April expanded the number of groups subject to negative rates on deposits at the central bank in a fresh effort to curtail demand for the franc. The SNB said at its last policy review in March that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary."

    [USD, CAD]
    USD-CAD has settled back in the mid-1.24s after leaving a six-week high at 1.2538. The retreat reflects a broader correction in the U.S. dollar following recent sharp gains. USD-CAD left a four-month low at 1.1920 on May-14, but we didn't see a convincing break of the big-picture support region at 1.1950-1.2000. The pair has now breached back above a previous support zone marked by 1.2351 to 1.2400, which leaves a convoluted technical picture.

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