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By XE Market Analysis March 13, 2014 3:55 am
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    XE Market Analysis: Europe - Mar 13, 2014

    The USD posted across the board losses, extending recent weakness, aided by AUD-USD gains following a much stronger than expected Australian employment report, and a NZD-USD rally after the RBNZ hiked interest rates. USD-JPY was also weighed on by January machine orders, which came in above expectations, at +13.4% in January. Stocks were net steady today in Asia, though intraday gains were pared following a set of weaker than expected China data. China premier Lei said that debt risks were under control. Overall, data and developments were a mixed bag in Asia. USD-JPY saw a low of 102.50, which is about 25 pips down on yesterday's London closing level and the lowest in eight days. EUR-USD logged a fresh trend peak of 1.3948, which is the highest level the euro has seen since November 2011. Cable logged a new high for the week of 1.6685. AUD-USD outperformed in rallying to a six-day high of 0.9080 on the Australian data.

    [EUR, USD]
    EUR-USD logged a fresh trend peak of 1.3948, which is the highest level the euro has seen since November 2011. The latest up move reflected general dollar weakness, while euro has been generally underpinned after the ECB last week upped growth forecasts while announcing that it was refraining from taking further monetary easing. A test of 1.4000 now looks likely. Support comes in at 1.3915 (the Mar-7 peak) and 1.3900.

    [USD, JPY]
    USD-JPY saw a low of 102.50, which is about 25 pips down on yesterday's London closing level and the lowest in eight days. A strong January machine orders report, which came in above expectations at +13.4% in January, along with general dollar weakness aided USD-JPY lower. 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. Support is at 102.50, and 101.00-101.11, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling has remained heavy against the euro after EUR-GBP punched above 0.8350 for the first time this year. The cross also breached above its 200-day moving average for the first time since last October, which provides another piece of evidence to suggest that the broad rally the pound had seen from mid-last year through to early February can be declared over. Cable logged a one-month low of 1.6568, but has since recovered the 1.6600 handle on the coattails of EUR-USD's rally and the associated broader weakness of the dollar. M&A deals have been supported of EUR-GBP, as both Rolls Royce and Vodaphone agreeing major Eurozone purchases this week. BoE's Bean was also cited by a local newspaper saying, "one thing we want to stress is, we don't think there should be any urgency in raising (interest rates)". Bean had earlier in the week also said that the strength of the pound is a concern. We are targeting Cable to 1.6500.

    [USD, CHF]
    EUR-CHF has drifted back under 1.2200 in recent sessions as geopolitical risk remains over the Ukraine, which is returning support to the safe haven franc. China slowdown concerns are another factor, as this has driven a sharp drop in commodity markets this week. The recent cycle low of 1.2104 and 1.2100 are key support levels. 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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