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By XE Market Analysis February 28, 2014 7:11 am
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    XE Market Analysis: North America - Feb 28, 2014

    Various movements were seen today. The EUR surged on the above-forecast Eurozone HICP flash estimate for February, which markets took this as increasing the odds that the ECB will refrain from taking further monetary action at the upcoming March policy meeting. EUR-USD spiked over 100 pips in making 1.3813, which brings the Dec-30 high of 1.3819 into scope. EUR-JPY saw a rally of similar magnitude in making a two-day high of 140.67. A backdrop factor we picked up in market talk is Russia's show of restraint (so far) with regard to the unfolding situation in Ukraine. Elsewhere, the CNY posted its biggest one-day loss versus the USD, further evidencing a change in policy stance in Beijing as this makes it the ninth consecutive day the yuan has traded lower. The JPY gave back some of the gains it saw following a mostly above expectations set of Japanese data that may reduce expectations of the BoJ taking further easing measures this year. USD-JPY ebbed to a 10-day low of 101.55, since settling back toward 102.00. Cable logged an 11-day high of 1.6768 before settling lower as sterling came under pressure via a spike in EUR-GBP. The EUR-CHF cross fell to a fresh low of 1.2149.

    [EUR, USD]
    EUR surged on the above-forecast Eurozone HICP flash estimate for February, which came in at 0.8% y/y. Markets had expected a 0.7% y/y. At 0.8% CPI remains unchanged from January. Market participants took this as increasing the odds that the ECB will refrain from taking further monetary action at next week's March policy meeting. EUR-USD spiked over 100 pips in making 1.3813, which brings the Dec-30 high of 1.3819 into scope. EUR-JPY has seen a rally of similar magnitude in making a two-day high of 140.67. A backdrop factor was Russia's show of restraint (so far) with regard to the unfolding situation in Ukraine.

    [USD, JPY]
    The JPY gave back some of the gains it saw following a mostly above expectations set of data that may reduce expectations of the BoJ taking further easing measures this year. USD-JPY ebbed to a 10-day low of 101.55, since settling back toward 102.00. Bigger picture, there remains muted directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown (and now geopolitical tensions), with the associated negative consequences on global stock markets, is an offsetting yen-supportive force. The 102.00 level has now reverted as near-term resistance, ahead of 102.50 and last Friday's three-week peak at 102.83. Support is at 101.50, ahead of major support at 100.00-100.80, the latter of which is the 200-day moving average.

    [GBP, USD]
    GBP picked up during the London AM session, which we gathered was due to a combo of safe haven attraction, with the EUR seen more exposed to the geo-political risks stemming from the Ukraine situation, and the relatively high yields that Gilt off compared to core Eurozone counterparts. Cable logged an 11-day high of 1.6768 before settling lower. A strong bid in EUR-GBP following unexpected strength in Eurozone inflation figures caused the cross to U-turn higher after making a 11-day low of 0.8190. The 0.8157-0.8200 is a key support zone as this region has marked a series of daily lows since mid-January. GBP was unmoved by either the as-expected Gfk consumer confidence figure nor by a remark from BoE's Dale, who said that the MPC members opinions may start to diverge on policy as the economy recovers.

    [USD, CHF]
    EUR-CHF fell to a fresh low of 1.2149, extending bear trend after breaking below 1.2200 and the Dec-17 cycle low of 1.2167. The cross traded at the lowest levels since April last year. The Swiss currency is following its usual outperforming pattern during periods of risk aversion, this time with market confidence shaken by the unravelling Ukraine situation and associated concern of broader geopolitical tensions. SNB-speak this month reaffirmed its strong commitment to maintaining the 1.20 limit peg, and 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 don'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 looks to be forming a potential double top formation, which is a classic reversal pattern. The pair's capping out just shy of 1.1200 last Friday left the late January major trend peak at 1.1224 unchallenged. There price action has been accompanied by a drop in upside momentum, and together point to a possible end of the bullish phase that was seen between October and January, implying potential for a sustained retracement or a period of stasis. Near-term support comes in at 1.11100, ahead of 1.1035 and 1.1020-25.

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