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By XE Market Analysis May 4, 2015 3:33 am
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    XE Market Analysis: Europe - May 04, 2015

    EUR-USD has traded a narrow range in early-week trade just above Friday's low at 1.1174. The absence of Tokyo and London centres will ensure thin trade today. Through to Friday, the euro had climbed for seven successive days, but looks likely for a pause now. Greece remains an issue. Despite signs that the government in Athens has adopted an improved attitude, news reports from weekend negotiations suggest that fundamental differences remain with creditors, particularly on pension reform and privatisation proposals. Elsewhere, USD-JPY has re-established itself above 120.00, though is looking heavy today. The absence of Tokyo has made for a thin market today. The yen has underperformed the euro and dollar since the BoJ last week lowered its inflation and growth forecasts for both the current and next fiscal years. AUD-USD edged out a one-week low at 0.7802 before lifting to the 0.7840 area. The OIS market is pricing in an 80% change of the RBA cutting the cash rate by 25 bp tomorrow.

    [EUR, USD]
    EUR-USD has traded a narrow range in early-week trade just above Friday's low at 1.1174. The absence of Tokyo and London centres will ensure thin trade today. Through to Friday, the euro had climbed for seven successive days, but looks likely for a pause now. Greece remains an issue. Despite signs that the government in Athens has adopted an improved attitude, news reports from weekend negotiations suggest that fundamental differences remain with creditors, particularly on pension reform and privatisation proposals. Also, the yield differential between U.S. 10-year T-note and Bunds has move back in the dollar's favour, widening to the 175 bp area from sub-170 bp levels seen late last week. EUR-USD resistance is marked by a range of former daily lows, seen in February, between 1.1270 and 1.1295. We see headwinds ahead for EUR-USD, expecting better U.S. data as the economy there recovers from its Q1 soft patch.

    [USD, JPY]
    USD-JPY re-established itself above 120.00, though is looking heavy today. The absence of Tokyo has made for a thin market today. The yen has underperformed the euro and dollar since the BoJ last week 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 support is 119.75-89, which encompasses last Thursday's high and the 50-day moving average.

    [GBP, USD]
    Cable has settled in the mid-1.51s after last week's sharp U-turn from a high at 1.5498. We think the rally to 1.5498 will prove to be an aberration. This Thursday's 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. The polls put the right-leaning Conservative Party in the lead, but some way short of an outright majority, which leaves the prospect of a left-leaning Labour-SNP (Scottish Nationalist Party) coalition as possible outcome.

    [USD, CHF]
    EUR-CHF has settled in the mid-1.04s after making a one-month high at 1.0508 last 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 recovered quiet strongly after logging a three-month low at 1.1914 last Wednesday. The fall in USD-CAD during the mid-to-latter part of April 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, bigger picture resistance markers, while the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 remains in play after last week's failed brake.

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