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By XE Market Analysis February 2, 2015 6:54 am
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    XE Market Analysis: North America - Feb 02, 2015

    EUR-USD crept higher, reaching 1.1354 but remained she of Friday's peak at 1.1363. A well informed source cited by the Tages Anzeiger newspaper said the SNB has initiated a "soft floor" in EUR-CHF at 1.05-1.10, which helps explain the gains the cross has seen over the last several trading days and may help support EUR-USD, at lease for now. Grexit concerns remain off the boil with PM Tsipras saying that Greece will repay its IMF and ECB debt, although he said negotiations with the EU will continue and that he wanted the Troika abolished. USD-JPY recovered to the mid-to-upper 117s after a sharp drop in early New Zealand trade to a low of 116.64 (which apparently traded even though the low on our chart is only 116.94). The dive was reportedly a thin market, stop driven move. Japanese corporates bought into the losses during the Tokyo AM, which helped put a floor under the pair, with short covering by speculative accounts and interbank traders adding fuel. AUD-USD traded steadily in the mid-to-upper 0.77s as markets wait on tenterhooks for the RBA's policy decision tomorrow, with most expecting a shift dovish shift in the bias but not an actual rate cut.

    [EUR, USD]
    EUR-USD crept higher, reaching 1.1354 but remained she of Friday's peak at 1.1363. A well informed source cited by the Tages Anzeiger newspaper said the SNB has initiated a "soft floor" in EUR-CHF at 1.05-1.10, which helps explain the gains the cross has seen over the last several trading days and may help support EUR-USD, at lease for now. Grexit concerns remain off the boil with PM Tsipras saying that Greece will repay its IMF and ECB debt, although he said negotiations with the EU will continue and that he wanted the Troika abolished. Bigger picture, we anticipate that EUR-USD has much further to go to adjust to the ECB's QE program, which commences in March and sharply contrasts the U.S. Fed policy, even if a tightening in the U.S. is looking more tentative. An eventual move on parity doesn't look out of the question, with the September 2003 low at 1.0762 providing an interim target.

    [USD, JPY]
    USD-JPY recovered to the mid-to-upper 117s after a sharp drop in early New Zealand trade to a low of 116.64 (which apparently traded even though the low on our chart is only 116.94). The dive was reportedly a thin market, stop driven move. Japanese corporates bought into the losses during the Tokyo AM, which helped put a floor under the pair, with short covering by speculative accounts and interbank traders adding fuel. We expect USD-JPY will be biased higher in the bigger picture as 'Abenomics' policies remain alive and well in Japan. A Bloomberg survey last week found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. The pronounced decline in EUR-JPY this week will have also strengthened the yen in trade-weighted terms, which is another factor that some analysts (including a research piece by Barclays last week) will also push the BoJ toward a new easing. USD-JPY support is at 117.25, resistance at 118.83-87 and 119.00.

    [GBP, USD]
    Cable was supported by the UK manufacturing PMI data, which rose to 53.0 in January from an upwardly revised 52.7 in December. The pound spiked to a high of 1.5089 from pre-data levels near 1.5055, before settling. Cable had briefly traded above 1.5100 during early Asian trade, but the gains had failed to sustain. Record lows in the 10-year Gilt yield has been keeping a lid on sterling, while our bearish big-picture view of EUR-USD obliges us to hold a bearish view of Cable, though we expect the pound to trend higher against the euro itself -- targeting an eventual move on 0.7000 in EUR-GBP. Since news of the sharp drop in UK CPI to 0.5% y/y, some BoE members, including Governor Carney, have been emphasizing that a fresh stimulus package is not on the cards, which contrasts to ECB policy. We have Cable support at 1.5018 and 1.4984-1.5000.

    [USD, CHF]
    EUR-CHF has firmed to the 1.0500 area in recent sessions, the highest levels seen since the SNB abandoned the peg at 1.2000 on Jan-15. The move partly reflects the steadier-to-firmer path that the euro has seen against the dollar, yen and other currencies over the last week, though a well informed source cited by the Tages Anzeiger newspaper today said the SNB is initiating a "soft floor" in EUR-CHF at 1.05-1.10. This follows remarks from SNB's Danthine last week that the SNB was still "fundamentally prepared to intervene in the foreign exchange market," and that Singapore's SGD basket policy "deserved closer examination." He had also said that the franc was still overvalued, but didn't mention what would be an appropriate level.

    [USD, CAD]
    USD-CAD has settled around the 1.2700 mark after clocking a new trend highs for nine consecutive days through to last Friday (when 1.2977 was seen). Oil prices have remained soft over this period, and the market is continuing to adjust to last week's unexpected BoC rate cut, which the central bank said was "insurance" against downside risk to lower oil prices, which are "unambiguously negative" for the Canadian economy. Low oil prices are bad for the Canadian dollar as it erodes Canada's terms of trade, and some energy analysts are expecting NYMEX oil prices to trade below the 2009 NYMEX crude low at $40.68. USD-CAD's August 2009 high at 1.3063 provides a big-picture target.

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