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By XE Market Analysis June 4, 2014 6:53 am
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    XE Market Analysis: North America - Jun 04, 2014

    The USD traded firmer against the euro and yen, though the extent of movement was limited with markets hunkering down ahead of tomorrow's ECB announcement and Friday's U.S. payrolls data. EUR-USD tumbled about 25 pips following a downward revision in the May Eurozone services PMI, to 53.2 from 55.5, but follow through was limited and the euro found a footing into 1.3600. USD-JPY popped to a one-month high at 102.79 during the Tokyo session before settling around 102.60-65. Stocks in Asia and Europe were mostly lower today, which was generally ascribed in market commentaries to being pre-event profit taking, which in turn seemed to curtail yen selling. Sterling came under some pressure against the dollar during the early London session, but subsequently managed to recover on an above-forecast services PMI outcome, which came in at 58.6 from April's 58.7. Cable popped 45 ticks from the pre-data low to the post-data peak so far at 1.6743, since settling around 1.6725-30. The Aussie was an outperformer today following above-expectations GDP data, which came in at 1.1% q/q and 3.5% y/y, above the respective median forecasts for 1.0% and 3.3%. The May AIG services also rose to 49.9 from 48.6. AUD-USD spiked over 40 pips in making a two-day peak of 0.9302, subsequently dipped back to the 0.9270-80 area.

    [EUR, USD]
    EUR-USD found a footing into 1.3600 after tumbling about 25 pips following the downward revision to the May Eurozone services PMI reading, to 53.2 from 55.5. The market doesn't look to have appetite to test 1.3600 and recent three-month lows just below here. EUR-USD has tumbled about four big figures over the last month and the market is now in holding mode ahead of the ECB policy announcement tomorrow and the U.S. jobs report, on Friday. We think there is scope for a EUR-USD rebound on the ECB announcement, which is likely to fall short of announcing QE in place of a modest rate cut and additional measures, such as an end of SMP sterilization and a targeted LTRO. However, we expect the U.S. May nonfarm payrolls to be dollar supportive as we forecast a 220k rise, with a solid 225k private payroll gain, and place risks for a better outcome due to an improving path for claims and strong employment data in producer sentiment releases.

    [USD, JPY]
    USD-JPY popped to a one-month high at 102.79, just over 40 pips up on yesterday's London closing level, before settling around 102.65. Asia stocks were lower today, which was generally ascribed in market commentaries to being pre-event profiting taking after the MSCI regional index clocked seven-month highs, and this backdrop helped curtail yen selling. 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 rallied on the services PMI data, which was better than expected at 58.6 and only fractionally down on April's 58.7. More especially the report revealed rising wages and a consequential jump in operating costs, which suggests potential for domestically generated inflations is starting to appear, which will not go unnoticed by the more hawkish members of the BoE's MPC. Cable popped 45 ticks from the pre-data low to the post-data peak so far at 1.6743, since settling around 1.6725-30. The BoE's MPC convenes for the June meeting today, 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 (focus on Weale) starts to vote in favour of hiking rates. We'll have to wait until the minutes on Jun-18 to find out. We favour shorting EUR-GBP given the contrasting ECB and BoE positions..

    [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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