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By XE Market Analysis January 21, 2014 7:33 am
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    XE Market Analysis: North America - Jan 21, 2014

    The dollar has remained generally bid, and data disappointments in Germany and the U.K. aided the greenback's case against the euro and sterling, while the yen also came under particularly pressure amid a risk-on backdrop following China's injection of funds into money markets today. The dollar also found support from WSJ Fedwatcher Hilsenrath, who highlighted that the Fed is on course to announce a further tapering of its QE asset purchasing schedule (we think the Treasury market has already factored an extra $10 bln per month reduction). The Fed's policy stance contrasts the ECB's battle to avoid the risk of deflation. EUR-USD ebbed back toward yesterday's eight-week low of 1.3507 during the European AM today after an early-London rally faded into 1.3565. The January German ZEW survey disappointed at 61.7. USD-JPY made a five-day peak of 104.75. The BoJ also started a regular two-day policy meeting today, which should at the least yield a reaffirmation of its expansive policy tomorrow.

    [EUR, USD]
    EUR-USD recovered after making an eight-week of 1.3507 low on Monday, but gains have remained limited. Underlying fundamentals remain bearish with the ECB making an concerted effort to decouple Eurozone yields from U.S. yields as the Eurozone central bank tackles a disinflation problem. In the broader view we think the pairing is making a topping formation and would therefore be more apt to sell into strength. Resistance at 1.3656-1.3679, which encompasses both the 20- and 50-day moving averages. Initial support is at 1.3580.

    [USD, JPY]
    USD-JPY made a five-day peak of 104.75. The BoJ started a regular two-day policy meeting today, which should at the least yield a reaffirmation of its expansive policy tomorrow. 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 received a short in the arm following last Friday's release of much stronger than expected retail sales data for December, though a disappointing CBI industrial trends figure has offset this. The overall outlook is still 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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