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By XE Market Analysis March 25, 2015 4:39 am
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    XE Market Analysis: Europe - Mar 25, 2015

    The dollar found its feet and traded firmer during the pre-European open session in Asia. EUR-USD settled to the low 1.09s during Asian trade after reaching a six-day peak of 1.0971 before capping out on Monday. Grexit risks continue to flow, with the latest swing for the worse as PM Tsirpas failed to unlock any emergency aid at his meeting with Chancellor Merkel yesterday, which put a lid on the euro. USD-JPY is lower for a third day, making 119.52 and bringing last week's one-month low at 119.29 into scope. That level markets support. A break would swing the 50-day moving average into scope and recent congestion levels around 118.62-119.11 into scope. A softer Nikkei today, following unexpected weakness in China manufacturing PMI data (down to 49.2 from 50.7 in the HSMC-Markit flash estimate for March), and weakness in Japan's version (which fell to 50.4 from 51.6), gave the yen an underpinning.

    [EUR, USD]
    EUR-USD made time in the low 1.09s amid a sense that recent euro gains are starting to stall. There is still no resolution to the Greek situation, and the ECB's money printing presses are hard at work, while the Fed is still generally accepted as being on course to tighten policy this year, even if not as soon as the June FOMC. EUR-USD has made a higher daily low for seven consecutive trading days, indicating an abatement in downside momentum after the pronounced declines seen over the first couple of weeks of March. There is still little appetite, however, to long the euro with the ECB's printing pressures now churning out at an average of EUR 3 bln per day through to September 2016, and with Grexit uncertainties to boot. Dollar sentiment, meanwhile, should in the bigger picture remain bullish with the Fed still on course to tighten. For now the bias may be higher, but we continue to expect to see EUR-USD at parity at some point. Resistance is at 1.1030 and 1.1051, support at 1.0863 (20-day moving average).

    [USD, JPY]
    USD-JPY drifted sideways in the mid-to-upper 119s, consolidating after yesterday dipping to a one-month low at 119.22. The 50-day moving average is presently sitting at 119.91, while recent congestion levels around 118.62-119.11 are seen as key support zone. We think there is risk for another extension lower, to the mid-118s but still think the bias will remain higher in the bigger picture, as the Fed and BoJ policy paths will remain contrasting ones into 2016. In time we expect the seven-and-a-half year peak at 122.03, seen on Mar-9, to fall on route to the mid-125s.

    [GBP, USD]
    Sterling saw a fresh low against the euro in the wake of sub-expectations UK inflation data on Tuesday. EUR-GBP touched a new one-month high of 0.7371, stalling just shy of the 50-day moving average at 0.7374. UK February CPI came in below expectations in falling to 0.0% y/y, which is the lowest level since records began in 1989 after declining from January's 0.3% rate. Core CPI fell to 1.2% from 1.4%, showing that the decline in the headline was not just about falling energy related costs or weak food prices. Today's data continues a run of bearish-sterling developments, including relatively dovish BoE-speak and unexpectedly soft wage data. Cable last week made a five-year low at 1.4635, but has since settled above 1.4900 in sympathy with general dollar declines. The daily highs seen last Thursday and Friday at 1.5010 and 1.4989 respectively, now mark resistance. Support is at 1.4880-95.

    [USD, CHF]
    EUR-CHF has established itself below 1.0600 following the SNB's announcement earlier in the month, which left the target range for the three-month Libor rate unchanged at -1.25% to -0.25% and the interest rate on sight deposits unchanged at -0.75%. There had been some analyst notes in circulation highlighting further policy options the SNB has available to try and keep a lid on the franc (including cutting rates deeper into negative territory). The SNB still said that the franc is "significantly overvalued and should continue to weaken over time," and that, in a shot across the bows of the market, said it will continue to take account of the franc rate situation in policy decisions and "remain active in the foreign exchange market, as necessary." Both the SNB and SECO cut growth forecasts, factoring in the sharp franc appreciation that was seen in January after the central bank abandoned the 1.20 floor in EUR-CHF. The SNB expects growth of just under 1% this year (down from 2% expected previously) and SECO 0.9% (from 2.1%). Key support in EUR-CHF is at 1.0515 (Mar-13) low and 1.0500 (the SNB's rumoured 'soft floor' ).

    [USD, CAD]
    USD-CAD has seen choppy price action centred around 1.2500-1.2700 after making new trend high at 1.2835 last Wednesday. We still see scope for an advance on the August 2009 high at 1.3063, as the Fed remains on course to tighten policy, albeit on a less certain timetable than was envisaged before last Wednesday's FOMC statement. Softer oil prices have been weighing on the Loonie over the last week, which is strengthening expectations for another BoC rate cut, possibly in April. The central bank said in February that the decline in oil prices are "unambiguously negative" for the Canadian economy. USD-CAD resistance is at 1.2601 (20-day moving average), support at 1.2478 (50-day moving average).

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