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By XE Market Analysis March 14, 2014 3:26 am
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    XE Market Analysis: Europe - Mar 14, 2014

    The yen has remained bid as stock markets in Asia came under pressure. Concerns about China slowdown and the associated corporate default risk theme, alongside the risk of ratcheting geopolitical tensions after the controversial referendum in Crimea this weekend, have been fuelling a risk-off theme. The MSCI Asia Pacific index was showing a 1.6% loss in late PM trade in Tokyo. USD-JPY posted an 11-day low of 101.50 and EUR-JPY saw a nine-day low of 140.62. The strength of the yen served to exacerbate Japanese stock market losses. The Nikkie closed with a hefty 3.3% loss. AUD-USD posted moderate losses in falling to 0.8996, but remained within the range it saw on Thursday. EUR-USD consolidated yesterday's losses and remained in a narrow range in the mid-1.38s. In news, the BoJ minutes to the February policy minutes slowed that members agreed that the economy and prices have been moving in line with forecasts. Japan's final January industrial production was revised to 3.8% m/m from 4.0%. A China policymaker source cited by MNI said that Chinese growth may fall below target during Q1 but that "there is no need to panic." The FT cited market analysts saying that is was "very likely" that the PBOC has been helping underpin the euro.

    [EUR, USD]
    EUR-USD consolidated yesterday's losses from two-year plus highs above 1.39, remaining in a narrow range in the mid-1.38s. The FT cited market analysts saying that is was "very likely" that the PBOC has been helping underpin the euro as China favours building up euro reserves over dollars. This would seem to make some sense as the recent gains don't seem to fit the fundamental picture and yield differentials with other currencies, such as the dollar. Support comes in at 1.3847-50, and 1.3825. Resistiance is marked at 1.3900-1.3915 and 1.3966 and 1.4000.

    [USD, JPY]
    The yen has remained bid as stock markets in Asia came under pressure. Concerns about China slowdown and the associated corporate default risk theme, alongside the risk of ratcheting geopolitical tensions after the controversial referendum in Crimea this weekend, have been fuelling a risk-off theme. The MSCI Asia Pacific index was showing a 1.6% loss in late PM trade in Tokyo. USD-JPY posted an 11-day low of 101.50 and EUR-JPY saw a nine-day low of 140.62. The strength of the yen served to exacerbate Japanese stock market losses. The Nikkie closed with a hefty 3.3% loss. 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 101.00-101.14, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling has come under pressure this week. Cable logged a one-month low and EUR-GBP made a fresh 2014 high at 0.8376, breaching above its 200-day moving average for the first time since last October. The broad rally the pound had seen from mid-last year through to early February can now be declared over. BoE's Bean earlier in the week said that the strength of the pound is a policymaker concern. Bean also said, "one thing we want to stress is, we don't think there should be any urgency in raising (interest rates)". 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. The recent cycle low of 1.2104 and 1.2100 are key support levels. SNB's Jordan said this week that the central bank would defend the 1.2000 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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