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By XE Market Analysis May 6, 2015 1:37 am
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    XE Market Analysis: Europe - May 06, 2015

    EUR-USD recovered above 1.1200 on route to a five-day peak at 1.1242. The 200-day moving average at 1.1264 and the May-1 two-month peak at 1.1290 provide upside markers. Greek uncertainties persist, but broad dollar weakness is underpinning EUR-USD following yesterday's big trade deficit miss, which risks a negative revision in Q1 GDP data. The dollar's yield advantage over the euro has narrowed to the 167 bp at the 10-year maturity comparison. USD-JPY slumped back to the 120.00 area after clocking a three-week peak at 120.50 yesterday. The move reflects broad dollar weakness, while EUR-JPY and AUD-JPY both rose to five-day highs. AUD-USD clocked a six-day high at 0.7974, underpinned by a rise in iron ore futures to a six-week peak, which offset a miss in Australian retail sales data.

    [EUR, USD]
    EUR-USD recovered above 1.1200 on route to a five-day peak at 1.1242. The 200-day moving average at 1.1264 and the May-1 two-month peak at 1.1290 provide upside markers. The latest move comes despite a Greek government official, cited by Bloomberg, saying yesterday that a compromise in bailout negotiations cannot occur until the IMF and the European Commission reduce the number of red lines they're demanding, and resolve differences between them. This has seen the Greek 2-year yield push back above 21% and saw the Greek benchmark stock index loose 3.9% on Tue. Despite this, broad dollar weakness is underpinning EUR-USD following yesterday's big trade deficit miss, which risks a negative outcome in revised Q1 GDP data while pushing back Fed tightening expectations. The dollar's yield advantage over the euro has consequently narrowed to the 167 bp at the 10-year maturity comparison. We advise caution, as this Friday's U.S. jobs report for April is likely to show a rebound from unexpected weakness in March. On net, we see scope for EUR-USD turning back under 1.1000.

    [USD, JPY]
    USD-JPY slumped back to the 120.00 area after clocking a three-week peak at 120.50 yesterday. The move reflects broad dollar weakness, while EUR-JPY and AUD-JPY both rose to five-day highs. The yen has been trading with a broadly soft bias 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 sideways, 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 steadied after underperforming notably late last week as markets finally woke up to the sea-change and uncertainties in UK politics that Thursday's general election is set to mark. The polls consistently 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 would likely be weak, while the SNP's ultimate objective is to break the UK up. Cable is presently settled in the low-1.52s 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. U.S. April payrolls on Friday are likely to be dollar supportive, while post-election political negotiations are likely to be chaotic and drag on, and there is a risk that another election will be called.

    [USD, CHF]
    EUR-CHF has ebbed back under 1.0400 after making a one-month high at 1.0508 last week, as there remains little sings of breakthrough in Greek negotiations with its creditors. The SNB is amid an ongoing fight to curtail EUR-CHF's downside. The central bank 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 SNB 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 more 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 below 1.2100 after leaving a high at 1.2205, which capped out a three-day recovery 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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