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By XE Market Analysis June 2, 2015 3:13 am
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    XE Market Analysis: Europe - Jun 02, 2015

    The dollar settled, the euro has been better supported while the Australian dollar rallied on the RBA's unchanged policy announcement. EUR-USD managed to lift back above 1.0900 after skirting to a 1.0891 low on Monday following above-forecast U.S. data. EUR-JPY is also trading just off three-week highs, and most other euro crosses are holding firm. A step-up in top-level political pressure from key Eurozone leaders to come up with a bailout deal that would be acceptable to the Greek government has given the euro an underpinning. On the dollar side, the rekindled Fed tightening theme got a minor boost yesterday with above-forecast May PMI and construction spending data, and focus will be factory orders numbers today, ahead of the May payrolls report on Friday. USD-JPY has settled to the mid-124s after extending to 125.05 yesterday, which is the best level since 2002 in nominal terms. AUD-USD rallied from near six-week lows to a five-day peak of 0.7604 after the RBA refrained from cutting rates at its policy review. The central bank's statement was also without bias, with policy judged to be appropriate for the time being.

    [EUR, USD]
    EUR-USD managed to lift back above 1.0900 after skirting to a 1.0891 low on Monday following above-forecast U.S. data. EUR-JPY is also trading just off three-week highs, and most other euro crosses are holding firm. A step-up in top-level political pressure from key Eurozone leaders to come up with a bailout deal that would be acceptable to the Greek government has given the euro an underpinning. On the dollar side, the rekindled Fed tightening theme got a minor boost yesterday with above-forecast May PMI and construction spending data, and focus will be factory orders numbers today, ahead of the May payrolls report on Friday. We think the data will collectively maintain September as a potential date for the Fed to make a modest first rate hike.

    [USD, JPY]
    USD-JPY rally extended to 125.05, the best level since 2002 in nominal terms. 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, and this narrative is underpinning USD-JPY.

    [GBP, USD]
    Sterling is steadier today after underperforming on Monday following the manufacturing PMI miss out the UK. Cable left a four-week low at 1.5170. EUR-GBP was firmer too, though remained below Friday's two-week high. The Markit manufacturing PMI disappointed at 52.0 in the May reading, slightly up from April's 51.8 (revised from 51.9), which is a six-month low-water mark, but well off the median forecast of 52.9. The PMI report showed that strong domestic demand is being offset by weak export performance, which has largely been a consequence of sterling's strength against the euro. Hiring in the sector was at its slowest in two years. The PMI release caught the sterling market in bearish mood. The EU membership debate has created uncertainties for long-term investors, while there has been some relatively disappointing data out of the UK over the last 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. Cable's May-7 low at 1.5164 provides a downside focal point. Construction and services PMI reports for May are the next focal points, and should hold up better than the manufacturing PMI.

    [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 logged a fresh six-week high at 1.2563 on Monday following perky U.S. data, which stocked the rekindling Fed tightening debate. This extends the recovery USD-CAD has seen from a four-month low at 1.1920, which was seen on May-14. The pair has now breached back above a previous support zone marked by 1.2351 to 1.2400, which leaves a convoluted technical picture in the bigger view.

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