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By XE Market Analysis March 11, 2014 3:53 am
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    XE Market Analysis: Europe - Mar 11, 2014

    Narrow ranges were seen among the main currencies today in pre-London open trade in Asia. USD-JPY posted a 103.20-103.42 range, settling around 103.30. The BoJ did the expected and left its overnight rate at 0.1% and the monetary base target at Y60-70 tln. The central bank also left its economic assessment unchanged, and although noting that export growth has levelled off, it said there has been a pick up in capital spending, and that industrial production has been increasing. A poll in the Nikkei newspaper found that 55% of Japanese plan to cut spending after 3 percentage point sales tax hike in April. This should help maintain expectations for further BoJ stimulus in Q2. Elsewhere, EUR-USD remained within 1.3860-80. AUD-USD was settled in the low-to-mid 0.90s, seeing on minor chop in the wake of the NAB business confidence for February, which dipped to 7 from 9. GBP-USD was unmoved by the overnight release of U.K. BRC retail sales report for February, which unexpectedly dropped 1.0% in the headline same stores figure.

    [EUR, USD]
    EUR-USD has been steady in the mid 1.38s, consolidating the gains seen following the steep rally from the low 1.37s after the ECB last week upped growth forecasts while announcing that it was refraining from taking further monetary easing. The much better than expected U.S. February jobs report put a lid on the rally, leaving a 29-month high at 1.3915. This level is now marked as a resistance, along with 1.3900. We're not keen on EUR-USD at these levels due to the continuing geopolitical tensions over the Ukraine and the fact that the U.S. jobs data supports the view of the Fed continuing its tapering of QE assets. Support comes in at 1.3825 and 1.3810.

    [USD, JPY]
    USD-JPY posted a 103.20-103.42 range in Tokyo, settling around 103.30. The BoJ did the expected and left its overnight rate at 0.1% and the monetary base target at Y60-70 tln. The central bank also left its economic assessment unchanged, and although noting that export growth has levelled off, it said there has been a pick up in capital spending, and that industrial production has been increasing. A poll in the Nikkei newspaper found that 55% of Japanese plan to cut spending after 3 percentage point sales tax hike in April. This should help maintain expectations for further BoJ stimulus in Q2. Bigger picture, there is muted overall directional impetus in USD-JPY within the 100.00-105.00 range. BoJ policy would favour continued yen weakness, but the threat of China slowdown is an offsetting yen-supportive force, via the possible association of negative consequences on global stock markets given the yen's normal inverse correlation with risk appetite. Resistance is marked at 103.45. Support is at 102.50, and 100.00-101.09, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling has been put on a lower profile after deputy governor of the Monetary Policy Committee, Bean, said any further appreciation of the pound would not be particularly helpful in terms of facilitating a rebalancing towards net exports. Sterling had already been under pressure on Monday by news that Vodafone agreed a preliminary deal of over EUR 7 bln to buy Spanish cable company ONO. Cable made a low of 1.6622, since settling around 1.6640. The Feb-27 low of 1.6616 was left untouched. Support is marked by this, 1.6600 and the Feb-24 low of 1.6583. EUR-GBP tested its Feb-6 peak of 0.8350, but has so far not broken it. We haven't been keen on Cable at these levels, thinking that the rally that's been seen since mid last year is likely over. We think the U.K. recovery will moderate, in part due to the generally firm levels of the currency, while on the U.S. side of the equation the strong February jobs report supports the view of the Fed continuing its tapering of QE assets.

    [USD, CHF]
    EUR-CHF drifted back under 1.2200 in recent sessions as geopolitical risk remains over the Ukraine, which is returning support to the safe haven franc. This leaves the rebound high at 1.2214, though there remains some distance from the fresh cycle low of 1.2104 that was seen on Monday, which is the lowest level seen since June last year. SNB's Jordan said over the weekend that the central bank would defend the 1.2000 EUR-CHF limit if concerns about Ukraine drove the franc higher. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. The SNB has signalled that it would only consider removing it if inflation was much higher (CPI dipped back to -0.2% y/y in February).

    [USD, CAD]
    USD-CAD logged a two-week low under 1.1000 last week only to rebound above 1.1100. In the bigger picture, we still think that the pair may be forming a potential double top formation, which for technical analysts is a classic trend reversal pattern. The pair's capping out just shy of 1.1200 on Feb-21 left the late January major trend peak at 1.1224 unchallenged. This price action has been accompanied by a drop in upside momentum, and together these developments point to a possible end of the bullish phase that was seen between October and January, in turn implying potential for a sustained retracement or a period of stasis. Support comes in at 1.1000, ahead of 1.0955 (the Mar-7 low).

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