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By XE Market Analysis February 13, 2015 6:42 am
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    XE Market Analysis: North America - Feb 13, 2015

    The dollar picked up some support during the European AM session after extending lower during Asian hours. EUR-USD ebbed back to the lower 1.14s after trading to an eight-day peak of 1.1439. Stronger than expected Eurozone GDP data didn't have much bearing, though the euro has continued to trade above its 20-day moving average, breaking above it yesterday for the first time since Dec-17, and which at 1.1380 now marks a key near-term support. The ceasefire agreement in Ukraine and subduing of Grexit concerns boosted the euro yesterday, though this sentiment has faded today with yield differentials remain in the dollar's favour, and with the commencement of the ECB's QE just around the corner. USD-JPY settled around 118.80-90 after recovering from the Tokyo-session low at 118.41, which left the Feb-3 low at 118.33 untroubled. AUD-USD settling lower clawed out a two-day peak at 0.7792 despite remarks from RBA Governor Stevens that a further decline in the Aussie is likely.

    [EUR, USD]
    EUR-USD ebbed back to the lower 1.14s after trading to an eight-day peak of 1.1439 amid broader dollar softness during the Asian session,. The euro is trading above its 20-day moving average for the first time since Dec-17. The average is presently at 1.1380, which provides a support level. The ceasefire agreement in Ukraine and subduing of Grexit concerns (though we're not out of the woods yet on that front, with Greece at the EU leaders summit today in search of a "new contract" with the Eurozone) boosted the euro yesterday, though this sentiment has faded today. Yield differentials remain in the dollar's favour, which are now around 165 bp in the case of the 10-year T-bond versus Bund, comparing to the 145 bp level that had been prior to the stellar U.S. payrolls report last Friday. We also expect the upcoming implementation of the ECB's QE program will grind EUR-USD to fresh lows, toward parity over time. The 11-year low at 1.1098, seen on Jan-26, offers an interim target. Support is now marked at 1.1394-1.1400 and 1.1380 (20-day moving average), resistance at 1.1486 (Feb-6 peak) and 1.1498-1.1500 (which encompasses the Fed-6 high).

    [USD, JPY]
    USD-JPY settled around 118.80-90 after recovering from the Tokyo-session low at 118.41, which left the Feb-3 low at 118.33 untroubled. The retreat from yesterday's six-week peak mostly reflected a broader correction in the dollar, which has given back a chunk of its post-payrolls gain. Disappointing U.S. jobless claims and retail sales data contributed to the softer dollar tone. The yen itself is weaker against the euro today, with yesterday's unnamed BoJ source story, which said that some members think that further monetary stimulus would be counter-productive, largely downplayed as the sources may be referencing dissenting members at the central bank, whose views are already known. A Reuters poll, meanwhile, has indicated that any further BoJ easing might occur in the second half of the year, while CPI is seen rising 0.3% in Q1 net of the tax effect versus 0.5% previously. A Bloomberg survey late last month also found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. Given this backdrop, we still favour the upside in USD-JPY.

    [GBP, USD]
    Cable was knocked back under 1.5400 after clocking a new six-week high in Asian trade at 1.5420. The pound was perhaps due for a correction having rallied some two big figures following yesterday's hawkish-leaning BoE Quarterly Inflation Report and weak U.S. jobless claims and retail sales data. Support is marked by the 50-day average at 1.5343. Sterling broke above this average yesterday, the first above it since Jul-29 last year, suggesting that the bear tend from the Jul-14 high at 1.7192 to the Jan-22 low at 1.4951 has come to an end. Key resistance is pegged at 1.5486-15507, which encompasses a series of previous daily lows. EUR-GBP is firmer today after logging an eight-year low at 0.7372 on Thursday. We are anticipating the cross will grind lower an test of 0.7000 in time, with the ECB commencing QE in March and with yesterday's remarks by BoE's Carney emphasizing a contrasting policy stance as he said that the next move in the UK would likely be a tightening.

    [USD, CHF]
    EUR-CHF recovered to the 1.0600 area from sub-1.05 levels on news of the agreement on Ukraine, which has been supportive of the euro. This extends the recovery the cross has seen since trading as a low at 1.0414 earlier in the week, which was seen during a bout general euro weakness. SNB's Jordan reaffirmed this week that the central bank is prepared to intervene in EUR-CHF if necessary, that, "We are observing the exchange rate situation as a whole ... If necessary we are active," but, " ... we do not speak about our transactions." He said that the franc remains "clearly overvalued" at around 1.0500, but said refrained to comment on what it considers the preferred franc levels or what it sees as a fair value. An "informed source" of the Tages Anzeiger newspaper last week said that the SNB is initiating a "soft floor" in EUR-CHF at 1.05-1.10. SNB's vice-chairman Danthine in late January that the SNB was still "fundamentally prepared to intervene in the foreign exchange market," and that Singapore's SGD basket policy "deserved closer examination." The SNB was widely reported to have intervened last Thursday from levels near 1.0500.

    [USD, CAD]
    USD-CAD is steadier around 1.2500 after yesterday spilling under Wednesday's low at 1.2572 on route to the low at 1.2538. The decline occurred concomitantly with a rise in front-month NYMEX crude futures back above $50 on news of the agreement on Ukraine, which has been supportive of the CAD and other commodity bloc currencies. Yield differentials still remain in the U.S. dollar's favour, however, and this should curtail USD-CAD's downside (unless we witnessing the beginning of a sea change in oil prices, which looks premature as yet). Technical support levels are at 1.2500 and 1.2435 (20-day moving average). USD-CAD's August 2009 high at 1.3063 provides a big-picture target.

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