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By XE Market Analysis January 3, 2014 8:00 am
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    XE Market Analysis: North America - Jan 03, 2014

    EUR-USD extended yesterday's loss to a one-month low of 1.3628. The move was driven in part by EUR-JPY during the pre-European Asian session, while USD-JPY dove to a 10-day low of 104.07 amid yen outperformance. Market liquidity rose with the reopening of Hong Kong, Singapore and Zurich, though conditions were still on the thin side. Sterling saw only a moderate gain following strong house price and mortgage lending data out of the U.K. AUD-USD managed to pop its head above recent consolidation highs to log a three-week high of 0.8998. There didn't appear to be any news or data development driving the Aussie, and it rose despite weaker stocks in Asia Pacific and disappointing China services PMI data.

    [EUR, USD]
    EUR-USD steadied after the rebound from the 1.3628 low stalled around 1.3650-60. A key level is given by the Dec-20 low of 1.3625 after of 1.3600. An Asian central bank was reported on the bid near the lows. A source of euro weakness has been EUR-JPY, which has posted a pretty steep decline over the last two days to a 10-day low to 142.09, down from the upper 144s where the cross opened the new year yesterday. We don't expect EUR-JPY losses to sustain as the BoJ's aggressive policy stance will likely keep the yen in a bigger-picture downtrend. EUR-USD, however, is a different story as we have a dollar bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed's QE tapering decision. Resistance is marked at 1.3675-80 and 1.3700.

    [USD, JPY]
    The yen rallied across-the-board today during Asia trade amid improved liquidity with the Hong Kong and Singapore centres reopening today, though Tokyo remained closed. USD-JPY made a 10-day low of 104.07, down from yesterday's London close of 105.01. EUR-JPY also fell to a 10-day low to 142.09, adding to the euro-driven losses of yesterday from the upper 144s. The yen's bid was consistent with its usual inverse correlation with stock market performance, with Asia markets trading lower for a second consecutive day. USD-JPY support is marked at 104.00-104.05, which encompasses the present level of a two-month trend support line. Strong support is marked at 103.40. We expect the yen to remain on a weakening path during the early part of 2014. Japanese policymakers are pursuing a weak currency and there will be market concerns about the impact of the planned 8% rise in sales tax next April, to which the BoJ may offset this by making further liquidity provisions. At its December meeting , the central bank maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen.

    [GBP, USD]
    Sterling has corrected lower amid rebounds in both the dollar and yen. Until recently the pound was being supported by differentials, with U.K. yields rising quicker than other G7 yields following a run of impressive U.K. data. Yesterday's unexpected dip in the manufacturing PMI provided a speed bump, though it doesn't change the overall positive outlook for the U.K. economy. Overall, forward looking survey evidence, such as PMI order data and CBI industrial trends, along with recent lending figures and house prices data, are collectively pointing to continued robust economic expansion. There are caveats, and the main issue for U.K. policymakers is that recovery has been too much driven by rising consumption and household debt and not enough by capital investment and export success. Despite such concerns, we expect sterling to continue trending higher during the early part of 2014.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9000 and EUR-CHF breached above 1.2300 yesterday for the first time in a month, up from its pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. This reflects an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2320, support at 1.2250 and 1.2220.

    [USD, CAD]
    USD-CAD has seen some pretty choppy price action over the last coupled of weeks, spiking to a major-trend peak of 1.0737 on Dec-20, subsequently diving to sub-1.06 levels before recovering the 1.0700 level once again. Bigger picture, the pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0440). This conviction may have been strengthened by the repeated rejections from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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