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By XE Market Analysis December 10, 2013 7:04 am
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    XE Market Analysis: North America - Dec 10, 2013

    The dollar set new trend lows against both sterling and the euro during pre-London Asian trade before consolidating at moderately firmer levels during the European AM session. EUR-USD saw a six-week high of 1.3768 after triggering a batch of buy stops through the key 1.3735 level, which can now be considered a support level. There haven't been data or other developments of sufficiently enough note to inspire direction in Europe, and flows are reportedly on the low side. The yen crosses were active. GBP-JPY led EUR--JPY and other yen crosses to fresh major highs during Tokyo trade today, while USD-JPY scraped above its Dec-2 peak to a new six-month peak of 103.39. Since then the Japanese currency has corrected, bringing USD-JPY back toward the 103.0 level at the time of writing and EUE-JPY was 50 pips down from the five-year peak it left at 142.17. We see the yen's rebound as only corrective in nature. The Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation policy stance. BoE Governor Carney had also boosted GBP-JPY by his remarks yesterday about the risks of a house price bubble developing in the U.K.

    [EUR, USD]
    EUR-USD remains perky, making a six-week high of 1.3768 in the pre-Europe Asia session. A batch of buy stops were triggered through the key 1.3735 level, which can now be considered a support level. There haven't been data or other developments of note enough to inspire direction in Europe, and flows are reportedly on the low side. EUR-USD's break of 1.3735 is a bullish sign, technically, as it breached above a resistance trend line of a bullish channel that's been in play since early November. The Oct-30 peak of 1.3787 is the next target, though many will have 1.3800 and the Oct-25 cycle high at 1.3832 marked as major resistance levels. The ECB's refrain from announcing further non-conventional stimulus at its meeting last week has been a support for the euro, though an event risk for the market would be the Fed opting to commence tapering at next week's FOMC. We don't think that will happen (we favour such a move next March), but that's the risk, which may serve to curtail EUR-USD's ascent in the meantime. We advise those bullish on the euro to take the EUR-JPY route given the BoJ committed ultra-dovish stance.

    [USD, JPY]
    GBP-JPY led EUR--JPY and other yen crosses to fresh major highs during Tokyo trade today, with USD-JPY scraping above its Dec-2 peak to a new six-month peak of 103.39. Since then the market has corrected, bringing USD-JPY back toward the 103.0 level at the time of writing. Bullish markets are apt to correct, and this how we look at this price action, and expect the yen to remain weak in the bigger picture. The 102.95-103.00 zone should offer immediate support, ahead of 102.85. A breach of the latter would have us looking at 102.50 and more especially the 102.20-25 region, as this marks trend and 20-day moving average support levels, and may encourage stronger buying. The Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation fighting stance, while BoE Governor Carney boosted GBP-JPY by remarking about the risks of a house price bubble developing in the U.K.

    [GBP, USD]
    Sterling outperformed in the period since Monday's London closing levels, extending to a fresh two-year high 1.6457 versus the USD, a new high for the week against the EUR, and a new major-trend peak versus the JPY. This followed remarks made after the London close by BoE Governor Carney, who said that U.K.'s need for stimulus risks fueling a housing market bubble, mentioning that the central bank has a range of tools it could deploy (which would include raising capital requirements for mortgage lenders), if necessary, to offset a housing market growing a "warp speed." The BoE has already announced that the mortgage market focused part of the Funding for Lending scheme will terminate in January. Next target for Cable is 1.6500 and the August 2011 peak at 1.6572.. Trend line support is some way off from prevailing levels, coming in at 1.6355. We had been recommending the GBP-JPY route for sterling bullish, though the market is looking overstretched and perhaps due for a correction.

    [USD, CHF]
    USD-CHF logged a two-year low to 0.8884, reflecting broader U.S. dollar weakness, while EUR-CHF has remained settled above the three-month low posted last Friday. The recent run of CHF outperformance has largely stalled following the strong U.S. payrolls report on Friday, which managed to revive risk appetite in global markets, though the issue about whether the Fed will commence QE tapering as soon as this month remains unresolved and could still cause some indigestion to markets. The safe haven Swiss currency will remain sensitive to developments on this front. We expect the Fed to refrain from tapering at its meeting next week, and this implies scope for CHF weakness, though the technical picture in USD-CHF and EUR-CHF is pretty much the opposite. EUR-CHF support is given by last Friday's low of 1.2215, and that fact that this matched the Sep-29 nadir strengthens the significance of this as a key support level. There was also a low of 1.2218 made on Jun-24, which builds the significance of the 1.2215-20 region as a support base.

    [USD, CAD]
    USD-CAD has settled to consolidation after the strong rally extended to a new major-trend high of 1.0707 last Wednesday following the BoC announcement and statement, which emphasized the downside risks to inflation. The pair looks to have become a bit overstretched, though a footing was found at 1.0625-30 on Thursday, and this support base has held good since. Good offers are now reported around 1.0700-10. A consolidation phase looks likely over the coming days, especially with U.S. Fed policymakers having entered the blackout phase ahead of next week's FOMC, which will deprive markets of clues with regard to whether the Fed will commence tapering this month or next.

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