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By XE Market Analysis April 21, 2015 7:45 am
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    XE Market Analysis: North America - Apr 21, 2015

    EUR-USD tumbled on news about the ECB, which is apparently considering curbing Greek ELA if Athens fails to deliver on reforms. The euro lost over 60 pips against the dollar since London opening levels, making a low of 1.0657. EUR-JPY concurrently fell below its Monday low, making a six-day nadir of 127.45. German ZEW investor sentiment also missed expectations, which prompted a wave of euro selling, though this petered out and EUR-USD's earlier low remained unchallenged. Elsewhere, the AUD fell after both RBA Governor Stevens and the minutes to the April policy review left the door open to another rate. AUD-USD fell to a six-day low of 0.7683, and AUD-NZD a two-week low. USD-JPY retreated to the low 119s after edging out a six-day high of 119.79, dragged lower by EUR-JPY selling.

    [EUR, USD]
    EUR-USD tumbled on the report about the ECB, which is apparently considering curbing Greek ELA if Athens fails to deliver on reforms. The euro has lost over 60 pips against the dollar from London opening levels in making an intraday low of 1.0659. EUR-JPY concurrently fell below its Monday low, making a six-day nadir of 127.45. We think EUR-USD can decline to recent lows under 1.0550 over the coming days, and see scope for parity in time on the basis that the U.S. economy will grow out of its recent soft patch (in part caused by inclement weather) and firm up the timing of Fed tightening. Regarding the ECB story, this stemmed from Bloomberg, which said that such measures have not been formally discussed by the ECB's governing council, but we would suppose this would be more likely if Greece fails to deliver at Friday's Eurogroup gathering. There's not too much to be optimistic about given Athens' intransigence, to date, to adopt creditor-satisfactory reforms, and it's hard to see there can be any progress while Syriza's red lines (which put wage cuts, privatizations etc out of bounds in negotiations) remain.

    [USD, JPY]
    USD-JPY retreated to the low 119s after edging out a six-day high of 119.79. EUR-JPY selling during the London Am weighed on USD-JPY as markets reacted to reports that the ECB may curb ELA to Greek banks. The convergence of the 20-, 50 and 200-day moving averages, presently sitting at 119.62, 119.82 and 119.29, respectively, indicate the broad lack of direction of USD-JPY, which has been entrenched in a sideways trading pattern since early December. Japan's Hamada said more easing may be needed if the 2% core inflation cannot be achieved.

    [GBP, USD]
    Cable extended to a six-day low of 1.4856, trading largely in step with EUR-USD, though EUR-GBP saw some downside drift amid general euro underperformance. Cable capped out at one-month peak of 1.5053 on Friday, which stalled just shy of the 200-day moving average. Initial support is now marked at 1.4825. Incoming UK data has and should continue to show that growth momentum is building in the economy. The EY Item Club said that the UK recovery has now reached "escape velocity," and that cheap oil and stronger pay growth is setting up the biggest rise in disposable incomes for two decades, which the group estimates will by +3.7% in 2015 (based on CPI averaging 0.1%). We concur with this view. The EY Item Club also expects GDP growth of 2.8% this year, which would match last year's, and 3.0% in 2016. The group also notes that consumer behaviour has not been affected by uncertainties about the outcome of the upcoming election. The general election is on May-7, which we expect will curtail the pound's upside potential.

    [USD, CHF]
    EUR-CHF clocked a new 10-week at 1.0234 on Monday, and has since remained heavy. Save haven demand for francs seem to have been at play given the prevailing Grexit risk, even though this risks the wrath of the Swiss central bank. While euro underperformance remains the SNB will probably be best advised to sit on its hands, although the central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." Sight deposit data, however, suggest that the SNB hasn't intervened since January, and previous speculation of the central bank having a "soft floor" at 1.0500 has long since been discredited.

    [USD, CAD]
    USD-CAD recovered above its 200-day moving average at 1.2227 after making a three-month low at 1.2088 on Friday. Last week's sharp decline (the pair had opened near 1.2570) followed a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by a decent rally in oil prices. USD-CAD's down move is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region is at 1.1950-1.2000.

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