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By XE Market Analysis April 24, 2015 7:20 am
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    XE Market Analysis: North America - Apr 24, 2015

    A whipsaw in the euro was the main event during the European AM session. EUR-USD U-turned lower from a 17-day high on Greece news that it took a "hammering" at the Eurogroup meeting in Riga, which postponed any decision on Greece until the May meeting. Markets had been wrong to believe in the optimism that Greek officials expressed yesterday. EUR-USD tumbled to the 1.0820 area after earlier touching a high of 1.0900 following an above forecast Germna Ifo data. AUD-USD edged out a two-day high at 0.7816 and AUD-NZD a one-month high despite the latest Bloomberg survey finding that 23 of 26 expect the RBA to cut rates May-5. The OIS market is also pricing in 54% odds of a 25bp cut. The AUD's yield advantage has nonetheless risen to new highs around 59 bp at the 10-year U.S. versus Australian debt maturity.

    [EUR, USD]
    EUR-USD U-turned lower from a 17-day high on Greece news that it took a "hammering" at the Eurogroup meeting in Riga, which postponed any decision on Greece until the May meeting. Markets had been wrong to believe in the optimism that Greek officials expressed yesterday. EUR-USD tumbled to the 1.0820 area after earlier touching a high of 1.0900 following an above forecast Germna Ifo data. We continue to take a bearish bigger-picture view of EUR-USD, seeing scope for an eventual more on parity, even if Grexit fears were to abate. We expect the U.S. economy to grow out of its recent soft patch (partly caused by inclement weather and a port strike on the west coast), which would in turn firm up expectations about the timing of Fed tightening. Such as scenario would fuel the next bearish phase of EUR-USD, we feel.

    [USD, JPY]
    USD-JPY fell to a four-day low at 119.15 before recovering to the mid-119s. Move follows yesterday's failure to sustain gains above 120.00 following four consecutive days of moderately higher highs. The dollar is now trading back below its 20- and 50-day moving averages. Bigger-picture momentum still looks fairly flat, with the pair having been in a broadly sideways trading pattern since early December, which has roughly been centred on 120.00. There has been nascent speculation that the BoJ may taper its QQE program in 2016, though this is a minority view with just four out of 32 respondents to a Bloomberg survey expecting this, while there is a majority who still expect an expansion in stimulus by the end of October. BoJ Kuroda said in a speech on Apr-19 that while "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower.

    [GBP, USD]
    Cable lifted to a one-month high of 1.5146, which swings the Mar-18 peak at 1.5169 into scope. This has been a technically constructive week for Cable, which has rallied from sub-1.49 levels largely on the back of a generally softer dollar, although the upbeat tone of the BoE minutes from the April MPC meeting provided some sterling-specific support. Admittedly yesterday's March retail sales data did unexpectedly fall 0.5% m/m, contrary to the median forecast for a 0.4% m/m increase, though sales declines weren't broad-based and a sharp dive in petrol station sales were the main cause. Trending improvements in real wages on the back of a strengthening labour market suggests the outlook for retail sales remains pretty solid. Ahead, next week's UK data releases are likely to be firm, on net, though the looming May-7 UK election should be a consideration for sterling traders and UK asset investors given prevailing outcome uncertainties. We also expect the U.S. economy to grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade. Cable support is marked at 1.5079 (former daily high), resistance at 1.5169 (Mar-18 high) and 1.5186 (200-day moving average).

    [USD, CHF]
    EUR-CHF has settled in the lower 1.03s after surging on Wednesday from the mid-1.02s. A high was left at 1.0427. The move was ignited by the SNB's decision to expand the number of groups subject to negative rates on deposits at the central bank. The SNB said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." We advise caution in trading long franc positions. SNB Chairman Jordan said today that the franc is "significantly overvalued" and that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD dropped to a one-week low of 1.2111, swinging the Apr-17 three-month low at 1.2088 back into scope. Gains this week above the 200-day moving average, presently situated at 1.2251, failed to sustain. 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. The fall 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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