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By XE Market Analysis April 2, 2014 7:46 am
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    XE Market Analysis: North America - Apr 02, 2014

    Trade has been characterized by a EUR dip following an MNI report of an ECB source, along with NATO warning that Russia remains a threat to the Ukraine. The JPY had also posted fresh lows against the USD and most other currencies during the Tokyo session before subsequently steadying during the European morning. EUR-USD fell to an intraday low of 1.3785, down from the a one-week high that was seen earlier at 1.3820. USD-JPY logged a high of 103.94, which is the loftiest level seen since Jan-24, before drifting to the 103.70 area. EUR-JPY made a three-week peak of 143.48 in Asia before dipping back to the 143.00 area amid the general euro pullback. Elsewhere, AUD-USD flat-lined in the low-to-mid 0.92s, and USD-CAD softened back toward the 1.1000 level. There was little sign of market concern about the NATO warning, with EUR-CHF having drifted higher and stock markets holding firm in Europe.

    [EUR, USD]
    EUR-USD fell back on an MNI report that cited an unnamed source at the ECB saying that targeted lending plans could be brought forward, although the same source also said that there had been an "over interpretation" of the possibility for QE. EUR-USD fell to an intraday low so far of 1.3785, down from the earlier peak of 1.3820. There were other euro bearish news: one being weak Eurozone PPI data, and the other being a warning from NATO's military commander that the reported Russian troop withdrawal from the border with Ukraine was only a "very small part" and that Russia has all the forces on the border that would be needed for an incursion into Ukraine. We favour a lower EUR-USD over time, based on the divergence between Fed and ECB policy paths, with the former having already signalled that a rate hike is on the horizon while the latter remains embroiled with fighting a threat of deflation. EUR-USD resistance is marked at 1.3815 and 1.3822-25.

    [USD, JPY]
    The JPY made fresh lows against the USD, EUR and other currencies, while news of a sizable earthquake in northern Chile had little market impact beyond a short-lived pop in copper prices (Chile is the world's biggest copper producer). Stock markets in Asia rallied, following the lead of Wall Street and Europe on Tuesday, where rallies were in part fuelled by report that at least some Russian troops had pulled back form the border with the Ukraine. This backdrop helped guide the yen lower. The currency has been declining since the start of the new financial year in Japan, with market commentaries associating this with a cessation of yen-supportive repatriation flows. There is also market speculation of the BoJ expanding its asset purchasing program further to offset the implementation of a sales tax hike. USD-JPY logged a high of 103.94, which is the loftiest level seen since Jan-24 and 33 pips up on Tuesday's London closing level. EUR-JPY made a three-week peak of 143.44. We target 105.00 in USD-JPY.

    [GBP, USD]
    Sterling has lost some shine following Tuesday's unexpectedly drop in the U.K. Markit manufacturing PMI report for March. A euro-driven rebound in EUR-GBP has also been at play. The market had been quite bullish on sterling over the last week, and while there were silver linings in the PMI report (the employment component was strong), the data presented a speed bump to market expectations. 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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