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By XE Market Analysis August 19, 2014 6:32 am
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    XE Market Analysis: North America - Aug 19, 2014

    The dollar was bid today, aided by a sharp dive in Cable to a four-month low on sub-expectations U.K. inflation data, while EUR-USD edged out a one-week low of 1.3343 and USD-JPY a two-day peak at 102.68. The NZD and the AUD were also on the move, in opposite directions. The kiwi dipped to a six-day low against the dollar, at 0.8425, subsequently recovering the 0.8450 handle. Soft PPI and the NZ Treasury's pre-election fiscal update weighed on the kiwi, while the Aussie was underpinned by the RBA minutes to the Aug-5 policy review, which highlighted an easing in financial conditions as Australian banks lower lending rates, and this was taken as a sign that a further reduction in the official rate cut may be less likely. AUD-USD logged a 12-day peak of 0.9342 as a consequence, while AUD-NZD rose to the highest level since December last year.

    [EUR, USD]
    EUR-USD logged a one-week low at 1.3343 with the pair remaining heavy after failing to hold gains above 1.3400 over the last week. Last week's highs also tested but failed to break above the 20-day moving average. Resistance is at 1.3407-15, which marks highs seen last Wednesday through to yesterday, while there is talk of good selling interest ahead of here, around 1.3390. The Ukraine situation, the impact of sanctions against Russian on the Eurozone economy (Russia is the Eurozone's fourth largest trading partner), and the Eurozone's disinflation problem should collectively maintain EUR-USD's bearish bias, even if the is Fed taking its time to an eventual policy tightening. We continue to anticipate an eventual test of 1.3000. Initial focus on the Aug-6 nine-month low at 1.3333.

    [USD, JPY]
    USD-JPY has inched higher, above 120.60 and bringing last Friday's two-week peak at 102.71 into reach. We anticipate a move above recent peaks above 103.00. Bloomberg reported last week that the BoJ officials are considering cutting growth forecast for FY 2014, "according to people familiar with the central bank's discussions," while the JGB 10-year benchmark yield has dipped below 0.50% for the first time in 16 months. USD-JPY support is now marked at 102.41 (200-day moving average), ahead of 102.17-20 and 102.00-10 (which encompasses the 100-day moving average). One uncertainty for a bearish yen view is the geopolitical situations in the Mideast and Ukraine, as any significant worsening, to the extent it causes a risk-off theme in global markets, would likely prompt yen gains.

    [GBP, USD]
    Sterling took a hit on the U.K. inflation data with Cable diving over 50 pips to a four-month low of 1.6634, and over 100 pips down on the high seen yesterday after BoE's Carney said that the U.K. is over halfway through its recovery. CPI fell to 1.6% y/y from 1.9% y/y in June, below the median forecast for 1.8% y/y. PPI input prices dove to a -7.3% y/y clip, and output prices dropped into negative territory for the first time this cycle, at -0.1% y/y. Following data last week showing a drop in average household incomes, to a negative reading in the including-bonus figure, the BoE won't be in any rush to hike interest rates. U.K. yields have also dropped, and market expectations for the first BoE repo rate hike are likely to shift out to the end of Q1 or Q2 next year. The previous trend low at 1.6657 now marks resistance in Cable, while technically-minded bears will be looking for a close below the 200-day moving average at 1.6675 to affirm potential for 1.6500.

    [USD, CHF]
    EUR-CHF clocked an eight-month low at 1.2086 after breaching supports at 1.2120 and 1.2100-2105. We expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100, and so expect the cross to base. SNB's Jordan repeated recently that the central bank remains firmly committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has found its feet after dipping to a seven-week low of 1.0860 last Friday. The pair has since recovered above key support marked by a confluence of the 20-, 100- and 200-day moving averages, contained within 1.0865-1.0885, which suggests that the technical picture is not so bearish. We look for a broadly sideways price action over the coming period, and a take a more bullish view in the bigger picture as we expect the U.S. economy to continue to recover.

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