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By XE Market Analysis December 16, 2014 6:43 am
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    XE Market Analysis: North America - Dec 16, 2014

    USD-JPY drove broader dollar declines today, while strong Eurozone PMI data supported EUR-USD. USD-JPY touched a low of 116.22, the lowest since Nov-17 and some 140 pips down on yesterday's closing level. A lot of commentaries pointed to the extended losses in Japanese stock markets, with the Nikkei closing 2% down today, as driving the yen higher. A mixture of interbank and speculative selling, along with sell-stop orders were also in the mix. Weak PMI figure out of China weighted on stocks in Asia, though equities managed to recover from a six-day losing streak in Europe. EUR-USD, meanwhile, logged a three-week high of 1.2528 in the wake of the PMI data. As from the data influences, there has also been a dollar-negative narrative in markets that says the recent dive in oil prices will strengthen the voice of the doves at the Fed's FOMC this week (announcement Wednesday), though we still expect the "considerable time" phrase to be dropped. AUD-USD scraped out a fresh four-year low of 0.8200 before recovering to the mid-0.82s. The minutes to the RBA's December meeting repeated that rate stability is likely most prudent course and that a further fall in currency is needed for economy. Cable rebounded recovered the 1.57 handle after a post-data dip to 1.5610, even though UK November CPI fell to 1.0%, the lowest since September 2002.

    [EUR, USD]
    EUR-USD rose above 1.2500 for the first time in nearly three weeks following an above-forecast Eurozone PMI data, with the December flash composite reading lifting to 51.7 from 51.1 in November. As from the data influences, there has also been a dollar-negative narrative in markets that says the recent dive in oil prices will strengthen the voice of the doves at the Fed's FOMC this week (announcement Wednesday), though we still expect the "considerable time" phrase to be dropped. We still remain bearish of EUR-USD in the bigger picture on the view of diverging Eurozone and U.S. economic growth, and with the ECB inching closer to implementing QE. We look for an eventual move on the July 2012 low at 1.2042 and see recent gains as opportunity to establish a short position. Resistance is marked at 1.2535 (50-day moving average) and 1.2575.

    [USD, JPY]
    USD-JPY touched a low of 116.22, the lowest point seen since Nov-17 and some 140 pips down on yesterday's closing level. A lot of commentaries pointed to the extended losses in Japanese stock markets, with the Nikkei closing 2% down today, as driving the yen higher. Interbank and speculative traders have also been riding sell-stop orders. Asia stock markets were affected by the Markit/HSBC Chinese manufacturing PMI for December, which came in at 49.5 in the flash estimate, down on the 49.8 median and the first sub-50 contractionary reading in seven months. European stocks have fared better, managing to rebound from a six-day decline. Bigger picture fundamentals remain yen bearish with PM Abe's landslide victory at the weekend's election giving a fresh mandate to yen-negative 'Abenomics' policies.

    [GBP, USD]
    Cable trading broadly sideways, centred around 1.5600-1.5700. We continue to class Cable as being in a bear trend, which has been persisting since the July cycle high at 1.7192. Resistance is now marked at 1.5700, while key resistance is some way off at 1.5825-26. The 1.5541 trend low marks support ahead of 1.5500, while the August 2013 low at 1.5102 should be in the crosshairs of bears. U.K. November CPI was much weaker than expected at 1.0%, the lowest since September 2002 and down on the median forecast for 1.2% and down from 1.3% in October. The drop in price pressures was driven by a 5.9% y/y fall in petrol prices, reflecting the dive in oil prices.

    [USD, CHF]
    EUR-CHF has been bumping along around the 1.2010 level, the upper level of the rumoured SNB buffer zone between here and the 1.2000 franc cap. SNB boss Jordan said last week that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary. 'Further steps' would likely centre on negative interest rates, which SNB member Zurbruegg recently argued would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. A Bloomberg survey last week found that more than 60% of respondents believe that the SNB will have to use negative interest rates to maintain the cap in the scenario that the ECB commences quantitative easing.

    [USD, CAD]
    USD-CAD logged new major-trend highs above 1.1600. Weaker than expected China manufacturing PMI data added to the CAN-bearish narrative as it suggests there is further scope for weakening oil price trend. We anticipate further advances. Support is marked at 1.1591-1.1600.

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