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By XE Market Analysis June 9, 2014 6:59 am
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    XE Market Analysis: North America - Jun 09, 2014

    The euro saw across-the-board weakness after an early London bid tampered out, while the dollar was mixed -- up on the euro but down versus the Aussie and Kiwi dollars, which benefited from a risk-on backdrop. Stock markets in both Asia and Europe rose on a much better than expected China trade surplus along with an unexpected upward revision to Japanese Q1 GDP, data which follow last week's ECB's stimulus and a fourth straight above-200k gain in U.S. payrolls. AUD-USD ground out a new three-week high of 0.9363, bringing the May-18 peak at 0.9375 back into scope. A MS research note forecasting Aussie rising back to parity caught market attention. EUR-USD, meanwhile, dove over 50 pips from the intraday high and breached Friday's 1.3621 low in reaching 1.3615. Good order-book offers kicked in at the highs, along with option related selling, according to market gossip, while U.S. Treasury yield spread widening versus Bunds gave a fundamental support to the dollar, offsetting continued demand for Eurozone peripheral sovereigns. The U.S. 2-year yield reached 36.5 bp, the best since August 2007. Elsewhere, the PBoC set the yuan reference rate at 6.1485, down from 6.1623.

    [EUR, USD]
    EUR-USD tumbled to a low of 1.3615 after earlier peaking at 1.3669, stalling eight pips short of Friday's high. Good order-book offers kicked in, along with option related selling, according to market gossip. One source notes that U.S. Treasury over Bund yield spread widening is underpinning the dollar, offsetting continued demand for Eurozone peripheral sovereigns. The U.S. 2-year yield reached 36.5 bp, the best since August 2007, while the 10-year T-note yield is pushing toward 125 bp above the Bund equivalent. We remain EUR-USD bearish as the ECB and U.S. Fed remain on contrasting policy footings. The ECB left the door open to QE while the U.S. jobs report produced the fourth straight 200k-plus gain in payrolls and there seems to be an intensification in debate about Fed rate hike timing. Resistance is marked at 1.3677-80 (which encompasses Friday's peak) and 1.3700. We look for a move back toward 1.3500.

    [USD, JPY]
    USD-JPY drifted slightly lower, to the 102.50 area. Japan's consumer confidence index for May came in at 39.3 versus 37 previously, while BoJ's Iwata said that the Japanese economy continues to move in a positive direction. 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]
    Cable recovered the 1.6800 level, though EUR-USD's sell-off returned pressure back onto the pair. Key resistance in Cable is marked at 1.6846 (Friday's peak), support at 1.6792-1.6798 (which encompasses both the 20- and 50-day moving averages). Meanwhile, we favour shorting EUR-GBP given the contrasting ECB and BoE policy footings, targeting 0.8000. We expect this week's U.K. data to collectively affirm that economic recovery remains on track, which should be supportive of sterling. The BRC retail sales report for May (Tuesday), April industrial production (also Tuesday) and the monthly labour market numbers covering March and April (Wednesday), are up this week. There is also a chance that BoE MPC member Weale became the first individual to vote for a for a 25 p rate hike at last week's policy meeting, which we'll find out when the minutes are released on Jun-18.

    [USD, CHF]
    EUR-CHF found a footing after making a one-month low of 1.2166 last week, though still holds below 1.2200. 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, but so far have remain 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 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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