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By XE Market Analysis December 30, 2013 7:56 am
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    XE Market Analysis: North America - Dec 30, 2013

    The main currencies chopped around in thin conditions. The yen made a fresh trend high for a fourth consecutive trading day, at 105.41. There were reports of Japanese exporters on the offer, which helped cap the dollar ahead of the 105.50 level, and the pair subsequently sank to a low of 105.12 during the London morning. Japanese markets will now be closed through to next Monday. EUR-USD oscillated around 1.3750, steadying after the wild price volatility of Friday, which now looks like an aberration on the charts. GBP-USD popped to a peak of 1.6497 following strong U.K. house price data before retreating toward 1.6450.

    [EUR, USD]
    EUR-USD drifted lower on Monday, to 1.3730 before finding a footing after making a peak of 1.3770 in early Asian trade. Volumes have of course remained very low, though the pair was comparatively steady after the wild, stop driven volatility of Friday. The short-lived spike to 1.3894 that was seen on Friday looks like an aberration on the charts, which is essentially what it was. The move marked a sharp turnaround following the Dec-20 low of 1.3625 that had been seen following the Fed's tapering announcement. Technically, the move would appear to be a bullish development, but we would advise caution with regard to a 'validity' of the move given the low volumes.

    [USD, JPY]
    The yen made a fresh trend high for a fourth consecutive trading day, 105.41, during the last business day of the year in Tokyo. There were reports of Japanese exporters on the offer, which helped cap the dollar ahead of the 105.50 level. Japanese markets will be closed from tomorrow until next Monday. We expect the yen to remain on a weakening path during the early part of 2014. Japanese policymakers are pursuing a weak currency and there will be market concerns about the impact of the planned 8% rise in sales tax next April, to which the BoJ is expected to offset this by making further liquidity provisions. At its December meeting , the central bank maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen.

    [GBP, USD]
    There remains a strong fundamental case in favour of sterling. U.K. yields have recently been rising quicker than other G7 yields following a run of impressive data and S&P last week affirmed its triple-A rating of the U.K. (albeit while retaining a negative outlook due to continue risks posed to U.K. trade by Eurozone ongoing uncertainties). Forward looking survey evidence, such as PMI order data, CBI industrial trends, along with recent lending figures and house prices data, are collectively pointing to continued robust economic expansion. Cable has now been in a bullish trend for six months, reflecting a trade-weighted appreciation of the currency over this time as U.K. recovery took hold. We anticipate more of the same in 2014.

    [USD, CHF]
    USD-CHF got caught up in the EUR-USD centered, thin market volatility on Friday, but EUR-CHF has remained comfortably above 1.2200. EUR-CHF had breached above 1.2200 ahead of the Christmas/new year holiday period, recovering from pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. The gain in the cross had reflected an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commencement QE tapering. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is at 1.2220 and 1.2200.

    [USD, CAD]
    USD-CAD has seen some pretty choppy price action over the last coupled of wees, spiking to a major-trend peak of 1.0737 on Dec-20, subsequently diving to sub-1.06 levels before recovering the 1.0700 level once again. Much of the volatility is down to thin, year-end market conditions. Bigger picture, the pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0440). This conviction may have been strengthened by the repeated rejections from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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