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By XE Market Analysis January 29, 2014 7:12 am
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    XE Market Analysis: North America - Jan 29, 2014

    The USD is little changed, with EUR-USD trading around 1.3660, after rising to 1.3685 earlier. Yen and Swiss franc meanwhile erased declines as the impact of the Turkish rate hike fades. It seemed the Turkish move revived confidence in emerging markets and reduced safe haven demand, but this was only short lived with the focus turning to the FOMC announcement today. European stock markets remain in positive territory, but are off earlier highs.

    [EUR, USD]
    EUR-USD moved back to the top of its recent range in London, following it knee-jerk move lower in the aftermath of the sharp Turkish interest rate hike. Thr FOMC will now take the spotlight, though it remains to be seen how risk appetite plays out post-Fed. The Eurozone fundamental picture is euro bearish, and ECB Draghi reaffirmed this week that interest rates will remain low or lower for an extended period, while the IMF reminded us that Eurozone inflation is "way below target". We look for relatively quiet trade into the FOMC this afternoon.

    [USD, JPY]
    USD-JPY popped back above 103.00 in the aftermath of Turkey's sharp interest rate hike, though the EM benefits largely ran their course into the N.Y. open, as the Fed announcement comes into view. The improved risk backdrop however, has about eliminated the view that the Fed might have second thoughts about announcing a further tapering in QE asset purchases. Market participants will wait and see how the jitters in emerging market pan out, and how the FOMC announcement impacts.

    [GBP, USD]
    BoE's Carney said from Davos at the weekend that, "I am not signaling an exit of UK monetary policy here just to be clear," referring to his recent acknowledgements of economic improvement. The recent sharp drop in the U.K. unemployment rate to 7.1% brought the BoE's self-prescribed 7.0% target to within a whisker's reach, but Carney last week said that other factors will be taken into account with regard to monetary policy, which of course we already know are inflation and financial stability criteria. Sterling has remained choppy of late, with cable moving between 1.6450 and 1.6650 for a week now. Good resistance is marked at 1.6650, levels above here saw strong selling interest last Friday. Overall, we are mildly bearish on sterling, though more so against the EUR, CHF and JPY than the USD for as long as the backdrop of risk-off persists.

    [USD, CHF]
    EUR-CHF had settled to a consolidation in the mid-1.22s after dropping amid the recent risk-off theme. The Turkish central bank move however, took a chunk of risk aversion off the table however, sending the cross over 1.2290 in early Asian trade. Support is marked at 1.2240-50, which encompasses lows and the 200-day moving average, while resistance is seen near 1.2310.

    [USD, CAD]
    USD-CAD posted fresh trend highs of 1.1187 in London trade, though fell back under 1.1140 into the North American open following Turkey's sharp rate hike. The FOMC meeting on Wednesday will be key for the CAD near term, though a dovish BoC may keep USD-CAD's bigger picture trend upward sloping.

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