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By XE Market Analysis June 10, 2014 2:29 am
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    XE Market Analysis: Europe - Jun 10, 2014

    A decline in USD-JPY was the main show in town in pre-Europe Asian trade. The pair dipped below Monday's low to 102.27, with Friday's low at 102.11 back in in scope after the latest foray above 102.50 proved to be short lived. Decent selling from at the Tokyo fix today got the ball rolling in a market otherwise lacking strong leads. Data out of Japan were slightly below expectations, with the tertiary index declining 5.4% m/m, while Japanese stocks declined, underperforming as most other bourses across the region rose today. The AUD and NZD currencies remained perky, benefitting from the generally risk-on backdrop. AUD-USD carved out a fresh three-week high of 0.9369. Expectations of fresh China stimulus in the form of a cut in reserve requirements along with the PBoC raising the Yuan's reference rate again offset disappointing ANZ job advertisements for May, which fell 5.6%. EUR-USD consolidated just under 1.3600. ECB's Weidmann said that ECB measures were a "wake-up call," and that there is a need to remain vigilant to potential over reactions, adding that he is against loose monetary policy for longer than necessary.

    [EUR, USD]
    We remain bearish as the ECB and U.S. Fed remain on contrasting policy footings. The ECB's actions last week were broad and, importantly, left the door open to QE as Draghi announced that there is to be an intensification of preparations for this course of policy. Meanwhile, the U.S. jobs report produced the fourth straight above-200k gain headline payrolls and there has been emerging intensification in the debate on Fed rate hike timing. There is not too much on the data and event calendar at the moment, and we expect EUR-USD to be a sell on rallies. Resistance is marked at 1.3620, ahead of 1.3677-80 (which encompasses Friday's peak) and 1.3700. We look for a move back toward 1.3500 over the coming weeks.

    [USD, JPY]
    USD-JPY dipped below Monday's low to 102.27, with Friday's low at 102.11 back in in scope after the latest foray above 102.50 proved to be short lived. Decent selling from at the Tokyo fix today got the ball rolling in a market otherwise lacking strong leads. Data out of Japan were slightly below expectations, with the tertiary index declining 5.4% m/m, while Japanese stocks declined, underperforming as most other bourses across the region rose today. 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 is lacking direction, and we expect more of the same. Key resistance in Cable is marked at 1.6846 (Friday's peak), support at 1.6792-1.6798 (which encompasses both the 20- and 50-day moving averages). Meanwhile, we favour shorting EUR-GBP given the contrasting ECB and BoE policy footings, targeting 0.8000. We expect this week's U.K. data to collectively affirm that economic recovery remains on track, which should be supportive of sterling. The April industrial production and the monthly labour market numbers covering March and April are still to come this week. There is also a chance that BoE MPC member Weale became the first individual to vote for a for a 25 p rate hike at last week's policy meeting, which we'll find out when the minutes are released on Jun-18.

    [USD, CHF]
    EUR-CHF found a footing after making a one-month low of 1.2166 last week, though still holds below 1.2200. 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 has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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