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By XE Market Analysis May 5, 2015 1:34 am
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    XE Market Analysis: Europe - May 05, 2015

    EUR-USD remains heavy, threatening to breach Monday's low at 1.1123. The upcoming release of the April U.S. payrolls report should be dollar supportive, we think, as the report should show a rebound from March's unexpected weakness. Greece also remains a thorn in the euro's side as news reports from ongoing negotiations suggest that fundamental differences remain between the Greek government and creditors. Sterling has underperformed notably over the last two trading days as markets finally wake up to the sea-change in UK politics that Thursday's general election is set to mark. The polls put the right-leaning Conservative Party in the lead, but well short of an outright majority, which leaves the possibility of a weak left-leaning Labour-SNP (Scottish Nationalist Party) coalition government forming. AUD-USD saw fairly extreme volatility in the wake of the RBA announcing a largely as expected rate cut, tumbling over 50 pips to a 0.7795 low before rebounding sharply to a high just above 0.7900. The RBA cut the cash rate by 25 bp to a record low of 2.0%, as was largely expected. The central bank said in the statement that a further fall in the Australian dollar is necessary, though made upbeat remarks about employment trends and housing market.

    [EUR, USD]
    EUR-USD remains heavy, threatening to breach Monday's low at 1.1123. The upcoming release of the April U.S. payrolls report should be dollar supportive, we think, as the report should show a rebound from March's unexpected weakness. Greece also remains a thorn in the euro's side as news reports from ongoing negotiations suggest that fundamental differences remain between the Greek government and creditors, particularly on pension reform and privatisation proposals. Support is at 1.1100 and 1.1071 (last Thursday's low), and resistance at 1.1224-25. Above the latter, big-picture 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 has consolidated Friday's gains above 120.00, though is looking heavier. The yen 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 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. Bigger picture, the pair is trending broadly sideways, having been orbiting the 120.00 since December. We expect an eventual breakout to the topside as the U.S. economy recovers traction following its Q1 soft patch.

    [GBP, USD]
    Sterling has underperformed notably over the last two trading days as markets finally wake up to the sea-change in UK politics that Thursday's general election is set to mark. The polls put the right-leaning Conservative Party in the lead, but well short of an outright majority, which leaves the possibility of a weak left-leaning Labour-SNP (Scottish Nationalist Party) coalition government forming. Labour has big plans to restructure British capitalism, though its mandate will be weak, while the SNP's ultimate objective is to break the UK up. Cable is presently settled in the low-1.51s after last week's sharp U-turn from a high at 1.5498. The rally to that high is proving to have been an aberration, and we are anticipating a return to sub-1.50 levels soon.

    [USD, CHF]
    EUR-CHF has been ebbing lower after making a one-month high at 1.0508 last week, reflective of general euro selling as there remains little sings of breakthrough in Greek negotiations with its creditors. The SNB last month expanded the number of groups subject to negative rates on deposits at the central bank in a fresh effort to curtail demand for the franc. 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 recently that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD has settled around 1.2100 after a three-day recovering from 1.1944. Bigger picture, the fall in USD-CAD from levels above 1.2700 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 resistance markers, and the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 remains in play.

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