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By XE Market Analysis April 28, 2015 6:25 am
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    XE Market Analysis: North America - Apr 28, 2015

    The euro remained well bid following news yesterday that Athens had chopped Finance Minister Varoufakis from the negotiating team. The dollar's yield advantage over the euro has also narrowed, too, albeit moderately, over the last couple of trading days, shrinking to the 175-76 bp area from around 180 bp at the 10-year T-note over Bund comparison. EUR-USD hit a new three-week high at 1.0931, surpassing yesterday's peak by four pips. Euro crosses also advanced, even EUR-CHF which sprung to a one-month peak at 1.0475. Elsewhere, USD-JPY plied a narrow range today, gently oscillating around 119.00. Markets in Tokyo wound down ahead of Japan's Golden Week holiday period. The commodity bloc remained perky, with AUD-USD clocking a one-month peak above 0.7900, piercing its 200-day moving average at 0.7886. The AUD's yield advantage over the USD continues to widen, now pushing above 65 bp at the 10-year debt maturity comparison, up from around 55 bp seen a week ago. USD-CAD, meanwhile, clocked a new three-month low at 1.2067.

    [EUR, USD]
    The euro continues to ebb and flow in sympathy with the ebb and flow of Greek exit concerns, rising in the latest phase on news that Athens has revamped its negotiating team. The dollar's yield advantage over the euro has also narrowed, too, albeit moderately, over the last couple of trading days, shrinking to the 175-76 bp area from around 180 bp at the 10-year T-note over Bund comparison. EUR-USD logged a three-week high at 1.0926 yesterday, breaching the 50-day moving average on route, which is currently sitting at 1.0887. Support is at 1.0845. 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. This is rooted on the premise that the U.S. economy will 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, we feel, would fuel the next bearish phase of EUR-USD.

    [USD, JPY]
    USD-JPY has plied a narrow range today, gently oscillating around 119.00. Markets in Tokyo wound down ahead of Japan's Golden Week holiday period. The intraday low is 118.94, and bids were reported at 118.90, which was yesterday's New York PM low. The 200-day moving average is at 119.27, which marks resistance. All of the 20-, 50- and 200-day moving averages are currently sitting within 119.00-120.00, and all have pretty horizontal profiles, reflecting flat bigger-picture momentum. The pair has 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 at a recent 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 said that while the "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower. We still favour the upside of USD-JPY as we expect the U.S. economy to grow out of its recent soft patch, which in turn would firm up Fed tightening expectations.

    [GBP, USD]
    Cable rebounded strongly after diving on disappointing UK GDP. Cable lost almost 50 pips from pre-release levels in making a 1.5173 low, subsequently surging over 90 pips to a new eight-week high at 1.5265. Market talk of an option expiry with a strike at 1.5250, said to be GBP 1.2 bln, was given as a reason for the rebound in spot by some participants. Prelim UK Q1 GDP came in at +0.3% q/q, half the median forecast and down from the 0.6% growth of Q4. While disappointing, the outlook for Q2 is brighter given gains in April PMI survey data and trending improvement in the labour market. We remain bullish sterling near term, though the looming May-7 UK election should be a consideration. Latest polls put the Conservatives in the lead, but without an outright majority, leaving the prospect of a SNP-Labour coalition as the most likely outcome. Markets thus far haven't being showing undue anxiety about this. Bigger picture, we see headwinds ahead for Cable. The U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we still think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF has sprung higher, toward 1.0500 amid a generally firmer tone in the euro. Recent highs at 1.0414 and 1.0427 were broken. This comes after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the current move is natural euro rally. 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." SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD logged a three-month low at 1.2067 today. This extends the sharp declines that have been seen since mid-April from levels near 1.2700, which has 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 $10 rise in oil prices. That fall in USD-CAD 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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