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By XE Market Analysis January 16, 2014 6:44 am
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    XE Market Analysis: North America - Jan 16, 2014

    The USD posted new highs against he JPY, GBP and AUD, the latter of which was hit by an unexpected dive in Australian employment data, though consolidated at slightly lower levels versus the EUR. Both USD-JPY and EUR-JPY lifted to new highs for the week of 104.92 and 142.91 respectively, before consolidating modestly lower during the European AM session. EUR-USD built a foothold back above 1.3600 following two consecutive down days that produced a low of 1.3581 yesterday, though selling interest into 1.3630 put a lid on upside and the pair dipped toward 1.3600 in the late London AM. Eurozone final December HICP inflation was confirmed at 0.8% y/y, in line with the preliminary number and expectations, and the ECB's monthly report strongly emphasized its accommodative policy stance, matching the remarks of Draghi last week and so not causing market impact. AUD-USD logged a two-year low of 0.8776 following an unexpected dive in Australian employment figures for December, which came in at -22.3k versus the median forecast for +10.0k.

    [EUR, USD]
    EUR-USD establish a mild bid tone, building a foothold back above 1.3600 following two consecutive down days that produced a low of 1.3581. Market commentaries are reporting selling interest from 1.3630 and again into 1.3650. Eurozone developments today include final December HICP inflation, confirmed at 0.8% y/y, in line with the preliminary number and expectations. The ECB's monthly report strongly emphasized its accommodative policy stance, with stepped-up forward guidance wording, matching the remarks of Draghi last week and so not causing market impact. Focus now falls on today's upcoming U.S. releases, including with CPI, the Philly Fed index, and weekly jobless claims, which we expect to collectively support the dollar. Big picture, we still think the pairing is making a topping formation. Key resistance is at 1.3668-1.3674, which encompasses both the 20- and 50-day moving averages.

    [USD, JPY]
    The yen has extended lower, mostly driven via EUR-JPY which sprang to a new high for the week at 142.91, while USD-JPY did likewise in lifting to 104.92. A return to risk-on sentiment has seen the yen weaken over the last couple of sessions, though Japanese stock markets underperformed with moderate losses today. Japan November machinery orders came in above expectations with an encouraging +9.3% m/m gain, while BoK Governor Kuroda said that the moderate recovery should survive the planned 8% hike in the sales tax increase in April, though he remarks won't stop markets speculating that the central bank may raise its asset purchasing program around this time to counter its effects. We continue to expect that USD-JPY's major-trend peak at 105.44 to fall as the BoJ's expansive monetary policy should continue to drive the yen to fresh lows during 2014. Data this month showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having. The BoJ is targeting a monetary base to Y270 tln by the end of the year.

    [GBP, USD]
    Sterling's outlook is looking generally less bullish following CPI figures that showed inflationary pressures to be rapidly unwinding and real sector data and survey evidence that have shown that the economy hasn't been sustaining recovery momentum as well has had been thought. The data backdrop supports the BoE's ultra-easy policy stance. We still expect the pound to hold up against the likes of the yen, but to loose ground to the dollar. GBP-USD's six-month rally now looks to have capped out and we see scope for a correction to 1.6000. Initial resistance is marked at 1.6450.

    [USD, CHF]
    The CHF has seen some choppy price action in recent sessions, but overall we expect the currency to remain on a bigger-picture softer footing as a consequence of the 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 1.2400, support at 1.2320 and 1.2300.

    [USD, CAD]
    USD-CAD has broken sharply higher over the last week, partly driven by weaker Canadian data and the consequent underpinning of favourable yield differential movement. The pair broke 1.0700, 1.0800 and now 1.0900, taking out its Dec-20 major trend peak of 1.7337 on route. The price action marks a break higher after some pretty choppy price action over the last several of weeks. Resistance can now be expected at 1.1000, support at 1.0920-1.0900.

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