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By XE Market Analysis July 7, 2014 7:29 am
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    XE Market Analysis: North America - Jul 07, 2014

    The dollar traded mixed in early week trade, firming against the EUR, GBP, and other European currencies, but moderately declining versus the JPY while trading near net unchanged against the AUD, as of the late London AM. EUR-USD dipped below last week's post-U.S. payrolls low to a new low of 1.3576, stalling one pip shy of the Jun-26 low. Corporate hedging in EUR-GBP drove a subsequent rebound that briefly saw the euro recover a 1.36 before the pair came back under pressure, and returned the euro to levels around 1.3585-90. The aforementioned EUR-GBP buying weighed on Cable, which sank below Friday's low to 1.7121. Both USD-JPY and EUR-JPY came under pressure, the former making a four-day low of 101.90 and the latter an eight-day low of 138.49. A Citi research note advises a short EUR-JPY position due to the ECB aggressive stance and the reducing odds of further easing measures from the BoJ. Elsewhere, USD-CAD consolidated around 1.0650, consolidating for a second trading day after making a six-month low of 1.0620 last Thursday.

    [EUR, USD]
    EUR-USD remains on a downward path, extending the post-payrolls low today to within one pip of the Jun-26 low at 1.3575 into scope. We don't expect too much let up in the bearish trend. Market analysts have started to revise Fed expectations in the wakes of the jobs report (both GS and Barclays, for instance, now think Fed hikes are closer, the former now expecting a hike in Q3 2015 after previously forecasting Q1 216)). We expect EUR-USD to eventually move in on the May low at 1.3503. The failed breach of the 200-day moving average last week and the subsequent breach of support at 1.3600-05, which encompassed the 20-day moving average, has reaffirmed strongly bearish technical credentials. Resistance comes in at 1.3610-11, today's high and 20-day moving average, ahead of 1.3640-50, which is a recent pivot and congestion zone.

    [USD, JPY]
    USD-JPY and EUR-JPY came under pressure, the former making a four-day low of 101.90 and the latter an eight-day low of 138.49. A Citi research note advises a short EUR-JPY position due to the ECB aggressive stance and the reducing odds of further easing measures from the BoJ. Bigger picture, USD-JPY 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]
    Sterling traded lower on corporate demand for EUR-GBP, which rallied over 30 pips from the new 20-month low at 0.7916. Cable sank below Friday's low to 1.7121, though the pair still looks poised for a test of last week's six-year highs at 1.7179-80. We remain sterling bullish. This week's U.K. production data should reaffirm the strong fundamental credentials of the pound, and be consistent with the BoE having left the hawkish starting gates ahead of the Fed and ECB. The BoE's stance was backed-up by a solid PMI report for June. A big-picture Fibonacci retracement level at 1.7330 in Cable, which is a 50% retracement level of the 2007 to 2009 decline, provides bulls with a target. Our EUR-GBP target is provided by the major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF breached 1.2150 last 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 is firmer today, around the mid-1.06s in early-week trade after clocking a new six-month low at 1.0620 on Thursday, which was the sixth consecutive lower low on the daily chart. The pair breached below the 200-day moving average at 1.0783 on Jun-20 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 (Jun-27 high) and 1.0700. Former congestion around 1.0580-1.0600 is support.

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