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By XE Market Analysis February 20, 2014 7:03 am
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    XE Market Analysis: North America - Feb 20, 2014

    Risk-off ensued following disappointing PMI data out of the Eurozone and China. This underpinned the yen and Swiss franc, while the euro came under particular pressure as the PMI outcome will favour the dovish arguments on the ECB board. The AUD also made fresh lows, though managed to recover somewhat during the European AM session. USD-JPY dipped to a three-day low of 101.66, and EUR-USD lost over 50 pips in breaching 1.3700, leaving a low of 1.3685 before steadying back around 1.3700. Heaviness in EUR-JPY and EUR-CHF, driven by strength in the yen and Swiss franc as risk aversion took hold following the China PMI outcome, had also been weighing on EUR-USD into the European data releases. EUR-CHF breached Wednesday's 1.2190, making 1.2186 before scaling back above 1.2200.

    [EUR, USD]
    The euro took a dive on the underwhelming Eurozone PMI data. EUR-USD lost over 50 pips in breaching 1.3700, leaving a low of 1.3685 before steadying back around 1.3700. The PMI data showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly against expectations for an ongoing improvement. Heaviness in EUR-JPY and EUR-CHF, driven by strength in the yen and Swiss franc as risk aversion took hold following weak China PMI data, had also been weighing on EUR-USD into the European data releases. Technically, the picture is bearish, particularly if we close out the week under 1.3700-1.3725. The two-week run higher to the Tuesday peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period, which had been associated with a notable drop in upside momentum following a six-month rally phase.

    [USD, JPY]
    The yen has been bid amid the latest bout of risk-off following disappointing China PMI data. Japan's January trade data added to the risk aversion, showing the deficit widening more than forecast, to Y2.97 bln (a new record). Moody's also warned that China slowdown is posing risks for its neighbours. The Nikkei closed with a 2.15% loss and USD-JPY dipped to a three-day low of 101.66. Support is marked at Monday's 11-day low of 101.39, which was posted after weaker than expected Japanese GDP data. Major support comes in at 100.00-100.59, the latter of which is the 200-day moving average. Resistance is marked by Tuesday's high of 102.74, which was the highest level seen this month. BoJ's Morimoto said that Japan's economic growth was exceeding potential ahead of April's sales tax hike (which we think is partly down to front-loading of consumption), while the February Reuters Tankan survey dipped for manufacturers.

    [GBP, USD]
    Sterling breached Wednesday's 1.6637 lower, making 1.6635 before settling higher, around 1.6650. A decent CBI industrial trends survey helped provide support, though we anticipate further sterling underperformance in the period ahead. The unexpected pop in unemployment to 7.2% from 7.1% and the dip in January CPI to a new cycle low of 1.9% y/y supports the BoE's prevailing dovish policy stance. The exceptionally bad weather in January and February can also be expected to shave the Q1 GDP growth outcome. Cable support is at 1.6635, and resistance is marked at 1.6700-10 and 1.6740.

    [USD, CHF]
    EUR-CHF breached Wednesday's 1.2190, making 1.2186 before scaling back above 1.2200. The prevailing risk-off backdrop following PMI disappointments out of China and the Eurozone has supported the Swiss currency. Swiss trade data also showed a bigger than expected surplus, of CHF2.6 bln, though domestic data don't normally have much impact on the Swiss currency (other than CPI, perhaps). The break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope, even though SNB-speak this month reaffirmed its strong commitment to maintaining the 1.20 limit peg, remarking that it would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). 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]
    USD-CAD extended to a two-week high of 1.1092, extending the Wednesday's surge through resistance at 1.10130-1.1050 following weak data out of Canada. The spike in risk aversion following a disappointing China PMI survey added further pressure on the Canadian currency. The spike higher has also breached both the 20- and 50-day moving averages. The technical picture looks less clean now. Initial resistance is at 1.1092-1.1134, which encompasses a series of daily highs that were seen during the first two weeks of February. We look to see if the pair can hold above 1.1000-1.1030 this week.

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