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By XE Market Analysis May 1, 2015 2:29 am
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    XE Market Analysis: Europe - May 01, 2015

    EUR-USD extended to a new two-month peak of 1.1266 in New York PM trade before settling to narrow range trading near 1.1200. EUR-JPY and other euro crosses have seen a similar price action, while the dollar itself has managed to recover some recently lost ground against other currencies following perky U.S. data on Thursday. USD-JPY recovered from its foray to the mid-18s and is back in familiar territory in the mid-119s. Cable saw quite a sharp correction to the low 1.53s after peaking at 1.5498 on Wednesday. This occurred as EUR-GBP stormed to three-week highs on Thursday. Cable has rallied from sub-1.46 levels in little over two weeks, and a correction was starting to look overdue. The May-7 UK election should be a consideration given outcome uncertainties and the fact that Cable lost about five points during the final run-in to the last election in 2010. AUD-USD has settled around 0.7900 after the sharp retreat from Wednesday's 0.8075 high, which always a move too far as the RBA will be eager to do what it can to curtail currency strength at its policy review next Tuesday.

    [EUR, USD]
    EUR-USD extended to a new two-month peak of 1.1266 in New York PM trade before settling to narrow range trading near 1.1200. EUR-JPY and other euro crosses have seen a similar price action, while the dollar itself has managed to recover some recently lost ground against other currencies following perky U.S. data on Thursday. Signs of economic improvement out of the Eurozone, such as the firm Spanish GDP data for Q1, along with a slight pick-up in price pressures, albeit from very low levels, has fed market narrative that the ECB may be obliged to taper its QE program at some point. And then there is the new-found 'Greeoptimism', which has seen the 10-year Greek yield tumble this week to near 10.5% from 13.5% and sparked a sharp retreat in Bunds as markets reassess safe haven premiums. EUR-USD resistance is marked by a range of former daily lows, seen in February, between 1.1270 and 1.1295. Above here, the 100-day moving average at 1.1301 provides another upside focal point. We headwinds ahead for EUR-USD, expecting better U.S. data as the economy there recovers from its Q1 soft patch.

    [USD, JPY]
    USD-JPY recovered from its foray to the mid-18s and is back in familiar territory in the mid-119s. The rebound reflects a broadly firmer dollar, ex EUR-USD, after firm U.S. data on Thursday, while big EUR-JPY buying has helped weigh on the yen. The BoJ yesterday lowered its inflation and growth forecasts for both the current and next fiscal years in its updated median-term projections. The central bank now expects CPI at 0.8% for the fiscal year 2015, down from the 1.0% projection in January, and GDP is now expected at +2.0%, down from the 2.1% previously forecasted. A similar shaving of numbers was seen for the 2016 fiscal year. The revised forecasts will keep open the possibility of the BoJ making further stimulus later in the year. USD-JPY resistance is at 119.75-85, which encompasses yesterday's high and the 50-day moving average.

    [GBP, USD]
    Cable saw quite a sharp correction to the low 1.53s after peaking at 1.5498 on Wednesday. This occurred as EUR-GBP stormed to three-week highs on Thursday. Cable has rallied from sub-1.46 levels in little over two weeks and a correction was starting to look overdue. The May-7 UK election should be a consideration given outcome uncertainties and the fact that Cable lost about five points during the final run-in to the last election in 2010. Polls put the Conservatives in the lead, but without an outright majority, which leaves the prospect of a SNP-Labour coalition as the most likely outcome (though Labour have thus far refrained from saying they would do this). Bigger picture, the U.S. economy should grow out of its Q1 soft patch as one-off impacts (inclement weather, port strikes) fade, and we still think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.04s after making a one-month high at 1.0508 earlier in the week. This came after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the latest gain has been a natural euro rally. The central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD has re-established itself above 1.2000 after logging a three-month low at 1.1914 earlier in the week. The latest drop extends the sharp declines that have been seen since mid-April from levels near 1.2700, which has followed a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by $10-odd rise in oil prices. The fall in USD-CAD is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 is now in play.

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