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By XE Market Analysis May 23, 2014 2:11 am
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    XE Market Analysis: Europe - May 23, 2014

    Modest USD firmness characterized a quiet session in pre-Europe Asia. USD-JPY led the way in rising to a nine-day peak of 101.85 before Japanese exporter offers took effect, and put a cap on the pair. EUR-USD dipped below Thursday's low and made a low of 1.3641, but the move stalled shy of Wednesday's three-month nadir at 1.3633. The AUD was a moderate outperformer, rising against the USD to 0.9249, but remaining within Thursday's range. There weren't any data or news developments of note. S&P raised its Spanish sovereign credit rating to BBB from BBB- with outlook is stable. The MSCI Asia Pacific index rose 0.5%.

    [EUR, USD]
    It has remained the case that there has been a distinct lack of substantive rebounds since the ECB-initiated drop on May-8. ECB-speak has remained dovish, and the recent generally more defensive tone in Eurozone peripheral bond markets and recent underperformance in European equities, despite expected ECB easing at the upcoming meeting in June, are bearish drivers of the euro. Incoming U.S. data, meanwhile, has and should continue to show recovery from the weather-affected Q1 performance. We anticipate EUR-USD will return to levels around 1.3500 over the coming weeks, which will cover the period of the ECB's June meeting, Eurozone May inflation data, and U.S. May payrolls report.

    [USD, JPY]
    USD-JPY led the way in rising to a nine-day peak of 101.85 before Japanese exporter offers took effect, and put a cap on the pair. Bigger picture, USD-JPY still remains entrenched 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.

    [GBP, USD]
    Sterling failed to hold gains above 1.6900 this week but is holding strong against the generally weak euro. We have been targeting 0.8000 in EUR-GBP. We are less bullish on Cable as we are bearish on EUR-GBP as we expect increasing signs of economic improvement out of the U.S., which should be supportive of the dollar. Initial EUR-GBP support is at 0.8085 (Wednesday's low). Cable resistance is at 1.6920-30 (which encompasses yesterday's peak).

    [USD, CHF]
    EUR-CHF has settled in the low 1.22s. The cross recently recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are key support levels. The threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying to some extent. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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