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By XE Market Analysis March 12, 2015 3:20 am
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    XE Market Analysis: Europe - Mar 12, 2015

    EUR-USD dove to a new trend low for a seventh straight day in making 1.0495 in Asia, since lifting to the 1.0540 area. A Citigroup research note pithily observed that if EUR-USD continues to fall at the average rate of decline seen over the last couple of weeks (which is 56 pips per day), the pair will reach zero by Jul-22. For now, we'll remain with the herd and stick to our forecast for parity. The latest down-leg breached both the April and March 2004 lows, at 1.0558 and 1.0501, respectively, and the January low of that year at 1.0334 provides the next downside focal point. Elsewhere, USD-JPY has continued to oscillate in the mid-121s while EUR-JPY has made new trend lows, this time a 21-month low at 127.62.

    [EUR, USD]
    EUR-USD dove to a new trend low for a seventh straight day in making 1.0495 in Asia, since lifting to the 1.0540 area. Supply remains abundant and rebounds are being picked off quickly by fresh selling. Real money funds and reserve manager types have been reported among the sellers over the last week. Obviously this state of affairs can't last forever, though there is clearly potential for overshoot. A Citigroup research note observed that if EUR-USD continues to fall at the average rate of decline seen over the last couple of weeks (which is 56 pips per day), the pair will reach zero by Jul-22. For now, we'll remain with the herd and stick to our forecast for parity. The latest down-leg breached both the April and March 2004 lows, at 1.0558 and 1.0501, respectively, and the January low of that year at 1.0334 provides the next downside focal point. The ECB's money printing juxtaposed to the now likely June commencement of Fed tightening has set EUR-USD up for sustained losses. The dollar's yield advantage pressed higher this week, to the mid-190s bp at the 10-year T-note versus Bund benchmark maturity level, though levels are softer today. We'll look for a flattening out in the widening trend, plus signs of ebbing downside moment in EUR-USD to judge when the euro adjustment phase is reaching a pause.

    [USD, JPY]
    USD-JPY has continued to oscillate in the mid-121s while EUR-JPY has made new trend lows, this time a 21-month low at 127.62 amid general euro underperformance. The breach of the Jan-26 low at 130.15 and 130.00 earlier in the week would have been seen as technically significant for the chart-minded, with both the 20- and 50-week moving averages having over the last month turned negative for the first time in two-and-a-half years. Trend support drawn from last April lows through to late January lows projects scope for a move to the 125.25 area. The June 2013 low at 1.2495 also provides a focal point for bears. USD-JPY, meanwhile, had logged a seven-and-a-half year peak at 122.03 earlier in the week, though EUR-JPY selling has offset upside momentum. Support is at 120.47-50, which encompasses former daily highs from mid-February.

    [GBP, USD]
    Sterling has traded mixed this week, clocking fresh trend highs against the euro but losing ground to the dollar, and more of the same looks likely. EUR-GBP posted a major-trend low at 0.7014 yesterday, bringing us to within a whisker of our 0.7000 target. The cross hasn't seen the south side of this level since November 2007. The ECB's quant buying program coming as the BoE draws nearer to a tightening has set the cross up for sustained declines. Resistance is at 0.7105 and 0.7171 (Monday's low). Sterling is faring less well against the dollar, which has been the long currency of choice for euro bears for the most part. Cable breached lows seen between late January and early December in the 1.4951-1.5000 region, subsequently extending to a low of 1.4893, which is the lowest level seen since July last year. The 2014 low at 1.4813 provides the next focal point. Resistance is at 1.4950-55 and 1.5000.

    [USD, CHF]
    EUR-CHF has ebbed under 1.0650, breaking free from the former orbit around the 1.0700 level amid general euro underperformance. The alleged "soft floor" of the SNB at 1.0500 is back in scope, though some market analysts (notably at UBS) contest the existence of this given the SNB's damaged credibility after failing to stop the tide at the former 1.2000 floor. The risks are skewed for more euro losses as the ECB QE program gets under way, which will likely test the resolve of the central bank. The SNB might respond by cutting interest rates deeper into negative territory, and perhaps pursue a tactical currency intervention policy aimed at keeping the market two sided rather than trend halting, per se. In extreme circumstances, capital controls would be an option, though this looks unlikely.

    [USD, CAD]
    USD-CAD on Wednesday came within one pip of the cycle high at 1.2799, which is a key resistance level ahead of the August 2009 high at 1.3063. Lower oil prices have weighed on the Loonie just as last week's solid U.S. jobs report has boosting the USD's yield advantage as the Treasury market anticipates a mid-2015 Fed rate hike. Canada's February jobs report will be released this Friday, which we expect to paint a less-rosy picture than in the case south of the border, forecasting a modest 5.0k rise in the headline and unchanged unemployment of 6.6%.

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