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By XE Market Analysis May 1, 2014 2:47 am
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    XE Market Analysis: Europe - May 01, 2014

    Narrow ranges prevailed in pre-Europe Asia trade, with a good number of centres closed amid Labour Day public holidays, as will be the case in Europe today. This left the dollar to consolidate the losses it saw after the U.S. GDP miss yesterday. The Fed didn't deliver any surprises after its FOMC meeting, announcing another $10 bln taper of QE purchases, to $45 bln while remarking that the economy is growing and will bounce back after a weather-related poor first quarter. The main data our of Asia was official China manufacturing PMI for April, which came in at 50.4, a tad below the 50.5 median. USD-JPY, after dipping to a 102.03 low at the London close yesterday, settled around 102.20-30. A 1%-plus rebound in the Nikkei stock index had little impact. EUR-USD flat-lined around 1.3870. AUD-USD probed above 0.9300 again, but failed to sustain gains through here, and settled around 0.9290. Australian data were disappointing. The AIG manufacturing index for April came in at 44.8, down from 47.9 in March, while RPData/Rismark house price index for April dipped to +0.3% from 2.3%.

    [EUR, USD]
    EUR-USD recovered quiet strongly after making a two-week low of 1.3774 on Wednesday, aided higher by broader dollar weakness following a sub-expectations U.S. Q1 GDP release. The pair extended to a near three-week peak of 1.3887 in early European trade today. The price action has brought key resistance levels into scope, at 1.3884 (Apr-13 high) and 1.3900-1.3905 (which encompasses the Apr-12 six-week peak. Above here and we have the major-trend high at 1.3966, which was made on Mar-13. We still favour selling EUR-USD, especially at these levels. As the Fed noted following its FOMC yesterday, the U.S. economy should pick-up through the year after weather-affected Q1 conditions. And while the threat of deflation has receded in the Eurozone, low inflation is likely to persist for some time, while weak confidence data suggest the ECB will still implement further stimulus measures, albeit not the 'big bazooka' policy effort that was hitherto seen as a possibility.

    [USD, JPY]
    USD-JPY, after dipping to a 102.03 low at the London close yesterday, settled around 102.20-30. A 1%-plus rebound in the Nikkei stock index had little impact. USD-JPY's oscillation within the 102s has persisted for over two weeks now. The pair is lacking direction amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year. Fundamentals seem more bullish, however, as Fed and BoJ policy paths are likely to become more divergent.

    [GBP, USD]
    Cable traded at a new major-trend high of 1.6901 on the back of the dollar slide in the wake of the U.S. GDP miss, breaching the November 2009 peak at 1.6871. We have been targeting 1.7000. GDP data for Q1 out of the U.K. this week came in one tenth of a percentage point below the median expectation in both q/q and y/y measures, though at 0.8% q/q and 3.1% y/y this is still the best growth since Q2 2010, while recent survey evidence is portending solid growth momentum lasting into Q2. Support now marked at 1.6840-45..

    [USD, CHF]
    EUR-CHF has settled around 1.2200 again, having recovered from the one-month low of 1.2142 that was earlier in the month. The cycle low of 1.2104 and 1.2100 are considered key support levels. While situation in the Ukraine remains a concern, and a potential supportive factor for the CHF, the threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying. SNB's Jordan repeated last Friday that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD gave up the chase above 1.1000 and slipped to around 1.0950. There are reports that oil settlement inflows have underpinned the Canadian currency in a relatively illiquid market. There doesn't appear to have been a fundamental driver. The Arp-9 three-month low of 1.0858 now swings back into view. Bigger picture, USD-CAD has been in a consolidation phase since late January following a four-month rally period from sub-0.9700 levels. We'd need to see daily and weekly closes below 1.1000 to support the idea that a trend reversal is on the cards.

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