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By XE Market Analysis May 29, 2014 3:17 am
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    XE Market Analysis: Europe - May 29, 2014

    The dollar softened moderately since the London close yesterday. The drop in the U.S. yields to near year-to-date lows weighed on the greenback generally. An AUD-USD rally led the way as the pair rose to a nine-day peak of 0.9301, up just over 100 pips from the lows. A major sovereign accounts was reported on the bid in Aussie, while stop buying was also at play. A sub-expectations -4.2% headline in Australian Q1 private capital expenditure knocked the Aussie only briefly as the data was downplayed by economists as the second estimate of this will be revised higher in light of yesterday's strong Q1 construction work figures. The details of the report also offset the horrible headline, with the equipment, plant and machinery spend rising 2.8% q/q. Elsewhere, USD-JPY drifted lower, to within one pip of yesterday's six-day low at 101.63 before steadying. A one-year low of 0.565% in the benchmark JGB yield curtailed yen buying, while stock markets in Asia were fairly neutral today. Japan's April retail sales were near expectations at -4.4% y/y, while BoJ member Shirai made upbeat remarks, saying that the positive cycle of output, income and expenditure should continue. EUR-USD drifted back around the 1.36 mark after making a fresh three-month low of 1.3588 yesterday. Cable was also moderately firmer. BoE's Weale said that raising rates should occur sooner rather than later.

    [EUR, USD]
    EUR-USD drifted back around the 1.36 mark after making a fresh three-month low of 1.3588 yesterday. Price action remains distinctly bearish with a new lower low having been made on each of the last four trading days. We are anticipating EUR-USD to fall to sub-1.3500 levels over the coming week, a week which will bring May Eurozone CPI data, the June ECB policy meeting (and expecting easing), and U.S. May payrolls report.

    [USD, JPY]
    USD-JPY drifted lower, to within one pip of yesterday's six-day low at 101.63, before steadying. A one-year low of 0.565% in the benchmark JGB yield helped deter yen buying, while stock markets in Asia were fairly neutral today. Japan's April retail sales were near expectations at -4.4% y/y, while BoJ member Shirai made upbeat remarks, saying that the positive cycle of output, income, expenditure were likely to continue. USD-JPY 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 yet, 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 sentiment has soured notably this week, dropped to six-week lows versus the dollar just under 1.67 and one-week lows against the euro. The Apr-15 low at 1.6659 provides the next natural target in Cable. The move has occurred concomitantly with a decline in the benchmark Gilt yield advantage, with the CBI distributive trades survey becoming the latest data pointing to a moderation in U.K. growth, backing up recent BoE-speak that has been aimed at cooling tightening expectations. Another thread in market talk is that Scotland's independence vote in September is starting to loom onto the radar screen as a possible hazard. We recommend running with the prevailing bearish sterling view for now, but don't see this as the nascent stages of a major trend change.

    [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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