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By XE Market Analysis February 13, 2014 7:25 am
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    XE Market Analysis: North America - Feb 13, 2014

    The USD remained on a generally soft footing as stock markets sank in Asia and Europe, and with the S&P 500 future showing a 0.6% loss ahead of the Wall Street open today. There were some notable earnings misses from the European corporate front, while in Asia there were reports of Chinese trust fund defaults. EUR-USD rose above yesterday's peak to a new two-week high of 1.3686. The gain was partly inspired by remarks from ECB's Coere, who said that the drop in inflation would not as yet be sufficient to spark further ECB action. Cable rose to a three-week high of 1.6654, building on the rally seen yesterday following the BoE's upgraded growth forecasts to bring the Jan-24 major trend high at 1.6668 into scope. USD-JPY sank to a five-day low of 101.87. EUR-CHF traded towards 1.2200 as the safe haven Swiss currency found support from the drop in stock markets. The AUD underperformed after Australian employment unexpectedly fell 3.7K in January and the unemployment rate ticked higher to 6.0% from 5.8%. The IMF also said that the AUD should fall to 0.8000.

    [EUR, USD]
    EUR-USD has remained well bid, rising above yesterday's peak to a new two-week high of 1.3686. The gain was inspired by ECB's Coere, who said that the drop in inflation would not be sufficient to spark further ECB action. Recent U.S. data disappointments have been a background factor too. However, we still prefer selling EUR-USD into strength as prevailing levels are starting to look rich against fundamentals. The possible use of a negative deposit rate will likely remain a topic in ECBspeak, and we see that both the U.S. recovery and the Fed's tapering course as remaining on track. Resistance is marked at 1.3700-1.3712 (the latter being the Jan-27 high) and 1.3739 (the Jan-24 peak). Bigger picture, the multiple rejections from 1.38+ levels from last October had been associated with a notably drop in momentum following a six-month rally phase.

    [USD, JPY]
    USD-JPY sank to a five-day low of 109.87. The perkiness in the yen correlated inversely with a correction in equities after a run of six consecutive up days. There were reports in China of trust fund defaults. In Japan, the economy minister said it would be difficult to the raise sales tax to 10% if economy slows while BoJ's Kuroda said that it remains desirable to achieve a 2% inflation rate as soon as possible. USD-JPY resistance is marked by Tuesday's 10-day peak at 102.70. Initial support is seen at 101.98-102.00, while major support comes in at 100.00-100.47, the latter of which is the 200-day moving average. Strong resistance can be expected at 103.00.

    [GBP, USD]
    Cable has traded higher on general sterling strength, continuing the gains seen yesterday following the BoE's upgraded growth forecasts and introduction of "phase II" of forward guidance. The Jan-24 high of 1.6668 is now in scope. EUR-GBP tested 0.8200, though has since recovered some amid a broader, EUR-USD led, bid in the euro. Sterling remained bid versus the dollar despite a disappointing outcome in the RICS house price gauge for January (though RICS downplayed it while reiterating its bullish outlook given the chronic supply constraint in the U.K.) and dovish remarks from BoE's Dale. We are wary about Cable's advance as the BoE isn't in any rush to tighten policy despite economic recovery with domestic pay awards remaining negative and inflation pressures waning. We also see both the U.S. recovery and the Fed's tapering course as remaining on track. We would recommend selling into 1.6680-1.6700, where market commentaries are reporting selling interest is residing.

    [USD, CHF]
    The CHF traded firmer on Thursday as equities corrected in Asia after a run of six consecutive up days. There were reports in China of trust fund defaults. EUR-CHF fell to a one-week low of 1.2207. The cross had made a two-week high of 1.2267 on Tuesday as the Swiss currency continued to unwind some of its safe haven premium, reflecting what had been a general recovery in stock markets. The Dec-17 cycle low of 1.2167 is now back in scope. SNB-speak last week affirmed that a removal of the 1.20 limit would only be considered if inflation was much higher had little impact. We wouldn't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    We continue to favour selling into USD-CAD gains as the price action from late January to early February confirmed a head-and-shoulders pattern topping formation. The recent run to a five-week peak of 1.1224 came with declining bullish momentum, which was a sign that the underlying trend was weakening. Projections target the 1.0800-1.0820 area. Initial resistance is at 1.10130-1.1050, while key resistance is marked at 1.1100, ahead of 1.1175 and 1.1200.

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