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By XE Market Analysis October 9, 2014 3:06 am
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    XE Market Analysis: Europe - Oct 09, 2014

    The dollar extended loss seen on the dovish FOMC minutes, which showed some members seeing "significant underutilization" of labour resources and concerned about a firmer dollar. EUR-USD extended to a two-week high at 1.2759 during the Asian session, while USD-JPY sank back below 108 and has so far came within four-pips of yesterday's low at 107.75, which stands as a three-week low. Cable lifted to a new high for the month at 1.6197. A similar stroy was seen in AUD-USD as the pair jumped to a two-week high at 0.8885. Data released included the September Australian employment report, which fell 29.7k, while, more interesting, was the sharp revision to the anomalous +121.0k reading of August, which was now reported at +32.1k. This didn't rock Aussie markets as no-one believed the initial release. In Japan, core machinery orders rose 4.7% m/m in August after a 3.5% gain in July, outpacing expectations for a more modest improvement. U.K. data showed fresh signs of slowing recovery pace. The September RICS house price balance came in at +30%, down on the Reuters median for 36%, while the BCC's quarterly economic survey showed the slowest export growth in nearly two years.

    [EUR, USD]
    EUR-USD extended to a two-week high at 1.2759 on general dollar weakness following the dovish FOMC minutes, which showed some members seeing "significant underutilization" of labour resources and concerns about a firmer currency. However, we still see limited potential for the upside in EUR-USD. The fundamental picture still has sufficient divergence between the paths of the U.S. and Eurozone economies to anticipate that the overall bear trend will remain in force. The 20-day moving average at 1.2765 offers an initial resistance point, ahead of 1.2800. We are looking for an eventual move on the July 2012 low at 1.2042.

    [USD, JPY]
    USD-JPY sank back below 108 and has so far came within four-pips of yesterday's low at 107.75, which stands as a three-week low. The move reflects a general correction in the dollar. In the bigger picture, yield and growth differentials between the U.S. and Japan should keep the U.S. currency underpinned against the yen. We see scope for an eventual move to 115.00. Support is marked at 107.75, while we look at 106.80-107.00 as a key support area. BoJ boss Kuroda said last Friday that the central bank is aiming to achieve the 2% inflation as "soon as possible," and that a weak currency won't be problematic so long as it reflects fundamentals.

    [GBP, USD]
    We don't expect much more upside progress for Cable. U.K. data today showed fresh signs of slowing recovery pace with the September RICS house price balance came in at +30%, down on the Reuters median for 36%, while the BCC's quarterly economic survey showed the slowest export growth in nearly two years. This follows last week's U.K. September PMI release, which showed the composite reading to have fallen to a six-month low. We expect incoming data to show the impact of the stagnating Eurozone economy, which should support BoE MPC member Broadbent's remarks of last week, that the economy is "not ready" for a rate hike. Resistance is marked at 1.6200 and 1.6238-40 (which encompasses the 20-day moving average).

    [USD, CHF]
    EUR-CHF is back above 1.2100 after SNB's Jorden said last week that there are additional measures that the central bank could use to enforce the EUR-CHF limit peg at 1.2000. This has put the major-trend low of 1.2044 out of the picture for now. The SNB will find defending the 1.2000 cap a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance.

    [USD, CAD]
    We remain bullish on USD-CAD and favour buying into recent dips. Last Friday's high was eight pips shy of the March major-trend peak at 1.1278, which we have been targeting. Support is marked at 1.1071 (Oct-2 low) and 1.1000. Major support is now some way off, at 1.0920-26.

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