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By XE Market Analysis July 2, 2014 6:54 am
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    XE Market Analysis: North America - Jul 02, 2014

    The dollar traded mixed, gaining against a generally soft euro, which was aided by fresh widening in Treasury versus Bund yield differentials, and rising versus the Aussie, which fell after an ugly Australian trade report, but losing ground to the yen and sterling, the latter rallying on a stellar construction PMI outcome. EUR-USD fell to a low of 1.3655 after breaching back below the 200-day moving average at 1.3675 amid fresh major-trend wides in T-note versus Bund yield differentials, which at the 10-year maturity pushed out to near 132 bp. Sterling outperformance drove EUR-GBP to a 20-month low of 0.7951, and Cable to a new six-year high at 1.7180 on a solid U.K. construction PMI, which at 62.6 was much stronger than expected, up from 60.0 in May and wrong-footing the consensus forecast for a decline to 59.5. Elsewhere, AUD-USD reversed more than half of yesterday's rally in tipping to the 0.9450-60 region. Australia's trade deficit widened to A$1.9 bln in May, a larger shortfall than anticipated after a sharply revised A$780 mln deficit in April. Exports were down 4.6% m/m. USD-JPY posted a narrow range, ebbing back under 101.50 after peaking at 101.65 in Tokyo.

    [EUR, USD]
    EUR-USD softer today with the breach back below the 200-day moving average at 1.3675 and fresh major-trend wides in T-note versus Bund yield differentials driving the euro to a 1.3655 low. A toehold was found ahead of the 1.3640-50 support zone, which encompasses Monday's low (1.3660) and a number of recent daily highs. Note much on the Eurozone calendar today, but Fed Governor Yellen speaks from 14 GMT and U.S. data includes the ADP jobs report, which will be a focus ahead of Friday's June payrolls report. The monthly ECB policy meeting is tomorrow. We anticipate these data and events will be net negative for EUR-USD.

    [USD, JPY]
    USD-JPY posted a narrow range, ebbing back under 101.50 after peaking at 101.65 in Tokyo. The pair remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year..

    [GBP, USD]
    Cable hit new six-year highs on the solid construction PMI, which at 62.6 was much stronger than expected, up from 60.0 in May and wrong-footing the consensus forecast for a decline to 59.5. This is the highest level since February and returns the indicator near to its cycle peak. The breakdown showed the highest pace in employment growth since 1997, and new orders growing the most since January. The data follows yesterday's solid manufacturing PMI survey, and we expect tomorrow's services PMI to follow suit to justify the BoE's recent shift to a hawkish policy. Cable clocked a new peak of 1.7180. Support is now marked at 1.7150. We have been targeting a big-picture Fibonacci retracement level at 1.7330, which is a 50% retracement level of the 2007 to 2009 decline. Our EUR-GBP target is provided by the major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF breached 1.2150 this week and extended to a 1.2133 three-and-a-half month low, as the situations in Iraq and Ukraine continues to underpin the Swiss currency's safe-haven premium. Technically, the break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, so far remaining unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD logged a fresh six-month low at 1.0626 today, the sixth consecutive lower low on the daily chart. The pair breached below the 200-day moving average at 1.0783 early last week and has been trending lower since. The move reflects a broad dollar-bloc bid that was initially sparked by much stronger than expected PMI data out of China and Japan, which has underpinned the commodity-correlating currencies as investors adjust a more optimistic world outlook. The BoC is also under pressure to reconsider its dovish policy stance. Resistance is pegged at 1.6996 (Friday's high) and 1.0700.

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