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By XE Market Analysis December 31, 2013 7:57 am
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    XE Market Analysis: North America - Dec 31, 2013

    The USD majors saw little movement. Japan among other Asia centres were closed today, while in Europe Germany is off and London participants will be calling it a day shortly. EUR-USD briefed skirted above 1.3800 again, but once again tipped back under this level to consolidate at familiar regions around 1.3760-70. Market participants seem somewhat weary about buying euros above 1.3800 following repeated failures to hold gains above here over the last two months. USD-JPY oscillated around 105.00, consolidating after posting its biggest annual gain since 1979, driven by yen weakness as a consequence of the 'Abenomics' policies to drive CPI from deflation to a 2% target. AUD-USD held above 0.8900 after reclaiming this level yesterday. Australian data showed that credit growth grew 3.8% y/y in November, up from 3.5% in October. The Aussie trended lower through 2013, having opened the year at near 1.05 levels, amid a slowing in Australia's .

    [EUR, USD]
    EUR-USD briefed skirted above 1.3800 again, but once again tipped back under this level to consolidate at familiar regions around 1.3760-70. Market participants seem somewhat weary about buying euros above 1.3800 following repeated failures to hold gains above here over the last two months. The euro has settled after the wild, illiquid market volatility of last Friday. The short-lived spike to 1.3894 that was seen then 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 the 'validity' of the move given the low volumes.

    [USD, JPY]
    The yen consolidated on the final day of 2013 after making a fresh trend high for a fourth consecutive trading day, at 105.41, on Monday. 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]
    Sterling will close out 2013 near two year highs against the USD after a six-month rally phase, which tallied with recovery in the U.K. economy after a prolonged period of stagnation. There remains a good 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 this month affirmed its triple-A rating of U.K. sovereign debt (albeit while retaining a negative outlook due to continued risks posed to trade by Eurozone uncertainties). Forward looking survey evidence, such as PMI order data and CBI industrial trends, along with recent lending figures and house prices data, are collectively pointing to continued robust economic expansion. There are caveats, and the main issue for U.K. policymakers is that recovery has been too much driven by rising consumption and household debt and not enough by capital investment and export success. Despite such concerns, we expect sterling to continue trending higher during the early part of 2014.

    [USD, CHF]
    EUR-CHF has remained comfortably above 1.2200. The cross 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 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 weeks, 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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