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By XE Market Analysis April 1, 2014 7:15 am
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    XE Market Analysis: North America - Apr 01, 2014

    The USD traded moderately firmer against the JPY and most currencies, though softer against the EUR following a decent set of data out of the Eurozone. Markets have now all but priced out any chance of an immediate ECB easing, had this was reflected by a narrowing in U.S. T-note over Bund yields spreads. EUR-USD tested 1.3800, but the market lacked the muster for a test of yesterday's 1.3809 six-day peak. EUR-JPY edged out a new two-week high of 142.64, in part aided by a continuing soft tone in the yen. USD-JPY firmed from the low 103s to a peak of 103.39, remaining just shy of Monday's 103.43 high. Japan's latest quarterly Tankan survey disappointed, while the 3 percentage point sales tax hike was implemented today, a background that maintained expectations for the BoJ to expand its asset purchasing program. Sterling dipped on U.K. data as the Markit manufacturing PMI for March unexpectedly dipped to an eight-month low. AUD-USD dropped below 0.9250 after popping to a four-month high of 0.9304 in Sydney. The RBA announced unchanged policy, and the statement noted that the rise in the AUD will reduce the "assistance" to the economy that was seen during 2013.

    [EUR, USD]
    EUR rose following a decent set of data out of the Eurozone, and markets have now all but priced out any chance of an immediate ECB easing, had this was reflected by a narrowing in U.S. T-note over Bund yields spreads. EUR-USD tested 1.3800, but the market has so far lacked the muster for a test of yesterday's 1.3809 six-day peak. EUR-JPY edged out a new two-week high of 142.64, in part aided by a continuing soft tone in the yen. EUR-USD resistance is marked at 1.3810 and 1.3822-25.

    [USD, JPY]
    The yen remained soft following weak Japanese data today and with market commentaries noting that the passing of the financial year-end in Japan having brought yen-supporting repatriation flows to a halt. USD-JPY has drifted slightly higher amid a backdrop of flat stock markets, and EUR-JPY also remained perky. Japan's Tankan report on business sentiment came in shy of expectations, with sentiment among large manufacturers at 17 in March, up from 16 in December but below the consensus forecast for 20. The Tankan also forecast a drop to 8 in June, below the median for 13. Reuters reported that a BoJ official said that the decline in the Tankan outlook exceed those seen at previous sales tax hikes (with regard to today's implementation of a 3 percentage point high in the sales tax, the first hike in this tax since 1997). Japan's finance minister, Aso, said that the tax hike is important to ensure fiscal credibility. The BoJ's aggressive reflation policy should favour continued yen weakness. We target 105.00 in USD-JPY.

    [GBP, USD]
    Sterling traded lower in the wake of the U.K. Markit manufacturing PMI report for March, which unexpectedly dipped to an eight-month low of 55.3, while the February reading was revised notably lower, to 56.2 from 56.9. The data contrasted Eurozone PMI reports and forecast-beating German labour numbers, and has seen EUR-GBP spike above 0.8290 from the mid 0.82s. The market had been quite bullish on sterling over the last week, and while there were silver liners in today's PMI report (the employment was strong), the data presented a speed bump to market expectations. Cable has dipped below 1.6650, putting a bit of distance in from yesterday's two-week peak of 1.6684. Bigger picture, Cable looks to be amid broad period of stasis, centred around 1.6500-1.6800. We would suggest, however, that sterling bulls focus on GBP-JPY.

    [USD, CHF]
    EUR-CHF has drifted lower after making a one-month peak of 1.2234 last Wednesday. The up move had reflected further unwinding of the Swiss franc's safe-haven premium. The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. We see potential for a recovery to the 1.2300-1.2400 area, but this assumes there are no renewed flare-ups in geopolitical tensions. The 1.2200 is now marked as a support level. SNB's Jordan earlier in the month that the central bank would defend the 1.2000 limit if concerns about Ukraine drove the franc higher. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. The SNB has signalled that it would only consider removing it if inflation was much higher (CPI dipped back to -0.2% y/y in February).

    [USD, CAD]
    USD-CAD has steadied around 1.1050-1.1100 after a run lower in recent days that broke below some key support levels, on route to testing 1.1000. The strength in the Canadian dollar tallies with notable gains that have been seen in the AUD and NZD currencies. This in turn reflects a shift to a less pessimistic global outlook (to which the dollar-bloc currencies are sensitive to) than we saw recently with regard to the China slowdown theme (now offset by expectations of stimulus), and the threat from the geopolitical situation between Russia and the West. USD-CAD's mid-March surge to new cycle high of 1.1278 now looks to have been false breakout. We don't advise getting too carried away with a bearish USD-CAD view as the Fed vs BoC stance remains supportive. Key supports are pegged at 1.0955 (the Mar-6 low) and 1.0910 (the Feb-19 low).

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