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By XE Market Analysis April 1, 2015 6:48 am
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    XE Market Analysis: North America - Apr 01, 2015

    The dollar popped higher before settling ahead of tomorrow's release of the March payrolls report. EUR-USD dove to 1.0718, just over 50 pips down on the intraday high before finding a toehold above yesterday's low at 1.0712. USD-JPY, meanwhile, steamed back above 120.00 after dipping to a low of 119.42 in Tokyo, and Cable fell to a 12-day low at 1.4739, despite above-forecast UK manufacturing PMI data. One of the more hawkish Fed members, George, provided a backdrop to the dollar's gains in saying after the NY close yesterday that it's time for the Fed to talk about rates lift-off, and that she isn't worried about a strong dollar although it would be unusual to tighten at a time when Asia and Europe are easing. There wasn't much follow-through buying, however. Like yesterday, there was talk of real money fund demand for EUR-USD into 1.0700, and good Japanese offers were reported above 120.00.

    [EUR, USD]
    EUR-USD took a sharp dive to 1.0718, which is just over 50 pips down on the intraday high, finding a toehold above yesterday's low at 1.0712. The drop reflected a broad dollar move, with USD-JPY steaming back above 120.00 and Cable diving sharply to a 12-day low at 1.4739. Two of the more hawkish Fed members, Lacker and George, provided a backdrop to the dollar's gains. Lacker said that there is a strong case for June hike, although there is no pre-set timetable. Fed's George said that it's time for the Fed to talk about rates lift-off. However, markets should be more focused on the tone of rhetoric coming from Yellen and other more dovish members with regard to the timing of a rate hike. A new rise in Grexit concerns, meanwhile, has been a euro negative. This said, tomorrow's March U.S. payrolls data is likely to show some mean reversion after outsized 239k-423k jobs gains since November that have defied moderating GDP growth. A period of volatile, but net sideways trade may be on the cards for EUR-USD.

    [USD, JPY]
    USD-JPY recovered the 120.00 handle during the European AM session after dipping to a 119.42 low in Tokyo. Big option expiries with 120.00 strikes are also said to be expiring at the New York cut today, which in theory may exert some gravitational pull on the pair. Direction is also likely to be crimped into tomorrow's U.S. March payrolls release. In the bigger view, USD-JPY continues to lack direction, with spot levels sandwiched between the 20-day moving average at 120.42 and the 200-day moving average at 119.39. We think the overall bias will be higher into 2016, as the Fed and BoJ policy paths are set to contrast into 2016. Nearer-term, however, the risks are to the downside as we expect some mean reversion in tomorrow's March U.S. payrolls data after a period of outsized headline increases.

    [GBP, USD]
    Cable dove to 12-day low at 1.4739 on the back of a broader dollar bid, which overcame a brief sterling rally following above-forecast manufacturing PMI data out of the UK. Incoming UK data has, and should continue to affirm recovery momentum (next focus on construction and services PMI surveys). The data should be positive for sterling and negative to Gilts, though concerns of a hung parliament outcome at the May-7 general election are likely to crimp enthusiasm for the UK currency and assets, especially if the SNP (Scottish Nationalist Party) ends up holding the balance of power. Cable resistance is at 1.4780 ahead of 1.4900-05 (which encompasses yesterday's high, support is 1.4722 and 1.4700.

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. There have been some analyst notes in circulation highlighting further policy options the SNB has available to try and keep a lid on the franc (including cutting rates deeper into negative territory). The SNB said at its March policy review that the franc is "significantly overvalued and should continue to weaken over time," and that, in a shot across the bows of the market, said it will continue to take account of the franc rate situation in policy decisions and "remain active in the foreign exchange market, as necessary." Both the SNB and SECO cut growth forecasts, factoring in the sharp franc appreciation that was seen in January after the central bank abandoned the 1.20 floor in EUR-CHF. The SNB expects growth of just under 1% this year (down from 2% expected previously) and SECO 0.9% (from 2.1%). Key support in EUR-CHF is at 1.0400-1.0422.

    [USD, CAD]
    USD-CAD dipped back under 1.2700 level after peaking on Tuesday at 1.2784. The 20-day moving average at 1.2633 now provides support. Yield differentials should remain a U.S. dollar positive into 2016 as the Fed remains on course to tighten policy, albeit on a less certain timetable than was envisaged before the March FOMC statement. The Mar-17 trend high at 1.2835 and the Aug-2009 high at 1.3063 are bigger picture targets.

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