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By XE Market Analysis September 22, 2014 3:13 am
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    XE Market Analysis: Europe - Sep 22, 2014

    The dollar is trading a mostly softer levels against most currencies. The case for AUD-USD was an exception as a backdrop of risk aversion -- after China's finance minister said Beijing will not make any "major policy adjustments" in light of recent weak data -- saw the Aussie underperform. AUD-USD hit a new six-month low of 0.8909. EUR-USD, meanwhile lifted to the 1.2865 area from around 1.2830, and Cable saw a similar price action in rising go the mid-1.63s. USD-JPY dipped under 109.00, correcting some after seeing a six-year peak at 109.46 last Friday.

    [EUR, USD]
    EUR-USD lifted to the 1.2865 area from a new 14-month low at 1.2826. We remain bearish. The Fed raised its interest rate projection this week, while the EU this month implemented fresh sanctions on Russia, the region's fourth biggest trading partner, and which should help maintain the ECB's easing bias. We target EUR-USD to the 2013 low at 1.2745. Key resistance is marked at 1.2995-1.3000.

    [USD, JPY]
    USD-JPY dipped under 109.00, correcting some after seeing a six-year peak at 109.46 last Friday. The yen firmed today as the Nikkei and Asian stocks dipped, which is the usual inverse correlation for the Japanese currency. Last Friday's new low in the yen had come after Japan's Cabinet Office downgraded its economic assessment on the back of weak consumption, flat exports and weak industrial output. We remain yen bearish, but are wary about the risk of sustained risk averse in global asset markets, as this would be support of the currency.

    [GBP, USD]
    The pound has settled after a big event week with Scotland's "No" to independence vote avoiding what would have been a chaotic break away from the United Kingdom. One-month Cable vols dropped sharply over the last two days of last week, to 5.8%, well off the 11.3% 33-high that was seen last week to bring August's 18-year low at 4.35% back into scope. Markets are now re-focused on U.K. fundamentals, where benign inflation and wage data last week left the BoE on an on-hold-for-now policy stance. There is also be political fallout from the Scottish referendum, with more devolution to Scotland and constitutional changes to come. Cable support is at 1.6300 and 1.6284. Good selling interest would likely be seen into 1.6400.

    [USD, CHF]
    EUR-CHF has re-established itself below 1.2100 after dipping back below here last Thursday when the SNB maintained prevailing policy settings after its policy review, refraining from implementing negative interest rates. Swiss policymakers had been emphasizing recently that negative rates was an option, so the lack of the move prompted CHF short covering. Instead, the SNB left the three-month Libor target at 0.00-0.25% and maintained its commitment to the 1.2000 limit peg in EUR-CHF. This recent new major-trend low of 1.2044 remains in focus, though the speculative market will be wary of possible SNB intervention. The SNB will find defending the 1.2000 cap in EUR-CHF 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]
    USD-CAD has been seeing some volatile trade, recovering to the upper 1.09-1.1000 area after the Fed raised its interest rate projection. Better Canadian manufacturing data, a recovery in commodity prices helped the CAD earlier in the wake, which put the March major-trend peak at 1.1278 back out of reach for now. Support is at 1.0920-26 (which encompasses a recent low).

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