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By XE Market Analysis June 3, 2014 6:52 am
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    XE Market Analysis: North America - Jun 03, 2014

    The USD looks set to open in New York not far from Monday's closing levels. The euro was left modestly higher after the flash estimate of May Eurozone HICP came in slightly above expectations at 0.5% y/y, although this is still two percentage points down from April while core inflation fell to 0.7% from 1.0%. EUR-USD settled around 1.3610 after rebounding from a lightening-quick dip to 1.3585 just as the data was being released. Euro price action has become generally more contained as the ECB meeting draws closer. Cable rose to a six-day peak of 1.6782 before dipping back to near net unchanged levels near 1.6750. The pound had wobbled on the U.K. May Markit construction PMI release as it unexpectedly fell to 60.0 after 60.8 in April, but the survey highlighted that the industry is struggling to keep up with demand. USD-JPY consolidated with within 15 ticks of yesterday's 102.48 high. An unexpected downward revision to the China HSBC-Markit manufacturing PMI for May, to 49.4 from 49.7, didn't stop Asia equities from rallying, though there was little FX impact. AUD-USD recovered over half of Monday's loss on the RBA's decision to leave the official cash unchanged at 2.5% as markets had factored in a small chance of a rate cut.

    [EUR, USD]
    EUR has been left modestly higher after the flash estimate of May Eurozone HICP came in slightly above expectations at 0.5% y/y, although this is still a two percentage point dip from April while core inflation fell to 0.7% from 1.0%. EUR-USD, unsurprisingly, has seen only a muted rebound, now settled around 1.3610 after a lightening-quick dip to 1.3585 just as the data was being released. Euro price action has become generally more contained as the ECB meeting draws closer. Friday's peak at 1.3650 is a key resistance level in the interim.

    [USD, JPY]
    USD-JPY reached a peak of 102.48 in New York trade on Monday and has subsequently consolidated within 15 ticks of this. The FX market wasn't tempted to push the yen lower despite most stock markets rising in Asia rising today, which chose to ignore an unexpected downward revision to the China HSBC-Markit manufacturing PMI for May, to 49.4 from 49.7, which still left the indicator at a four-month high. 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 recovered from post-data wobble, making a six-day high against both the dollar and the euro, though EUR-GBP since lifted a bit following the less-than-expect dip in Eurozone inflation data. Sterling has found its feet after taking a dive during the early part of last week. U.K. May Markit construction PMI unexpectedly fell to 60.0 after 60.8 in April, but the survey highlighted that the industry is struggling to keep up with demand. Tomorrow's services PMI should complete the picture of a continuing brisk pace of economic recovery. The BoE's MPC meets from tomorrow, announcing Thursday, and while this should be a non-event for markets, as no change and no statement are widely expected, there is a chance that one MPC member starts to vote in favour of hiking rates (we'll have to wait until the minutes on Jun-18 to find out). Cable seems to be entering a period of broad stability. Resistance is marked at 1.6774-77 (which encompasses Friday's peak and the 50-day moving average) and 1.6800, support at 1.6713 and 1.6700.

    [USD, CHF]
    EUR-CHF has settled in the low 1.22s. The cross recently recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are key support levels. The threat of SNB intervention into its 1.2000 limit peg is helping to deter speculative franc buying. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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