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By XE Market Analysis June 10, 2014 7:00 am
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    XE Market Analysis: North America - Jun 10, 2014

    A fresh dive in EUR-USD provided the main action, with the pair dropping quite sharply to a low of 1.3536 after couple of short-lived forays above 1.3600. The move has brought last Thursday's post-ECB low at 1.3503 back into scope. Stop selling was at play through 1.3575, and in EUR-JPY below 139.00. Major leveraged funds were reportedly among the early sellers, and there was market talk of European banks switching euro reserves to dollars to benefit from the improved yield advantage of Treasuries. The euro was also weak against the yen and sterling. Sterling itself benefitted from stronger than expected U.K. production data, though Cable fell back after a brief recovery above 1.68, with the dollar finding more general support from the weight of EUR-USD selling. EUR-GBP clocked a low of 0.8064, exactly matching the post-ECB low, before finding a toehold. USD-JPY declined to a 102.21 low before recovering to the 102.35 area. Decent selling at the Tokyo fix today sparked USD-JPY's decline from levels around 102.45-50.

    [EUR, USD]
    EUR-USD has logged a low of 1.3556, bringing last Thursday's post-ECB low at 1.3503 into scope. Stop selling was at play through 1.3575 and in EUR-JPY below 139.00. Major leverage funds were reportedly among the early sellers, and we've picked market talk of European banks switching euro reserves to dollars to benefit from the improved yield advantage of Treasuries. We have been targeting 1.3500 in EUR-USD. We remain bearish as the ECB and U.S. Fed remain on contrasting policy footings. The ECB's actions last week were broad and, importantly, left the door open to QE as Draghi announced that there is to be an intensification of preparations for this course of policy. Meanwhile, the U.S. jobs report produced the fourth straight above-200k gain headline payrolls and there has been emerging intensification in the debate on Fed rate hike timing.

    [USD, JPY]
    USD-JPY declined to a 102.21 low before recovering to the 102.35 area. Decent selling at the Tokyo fix today sparked USD-JPY's decline from levels around 102.45-50. Data out of Japan were slightly below expectations, with the tertiary index declining 5.4% m/m, while Japanese stocks declined, underperforming as most other bourses across the region rose today. 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 rose on stronger than expected U.K. production data, with Cable recovering the 1.68 handle after earlier faltering amid EUR-USD's drop, while EUR-GBP sunk back toward the major-trend low seen in the immediate wake of the ECB announcement last week, at 0.8064. Key resistance in Cable is marked at 1.6846 (Friday's peak). We have been targeting 0.8000 in EUR-GBP due to the contrasting stances of the ECB and BoE and associated scope for Gilts to extend their yield advantage over Bunds. U.K. April industrial production came in at 0.4% m/m and 3.0% y/y, the highest annual rate since 201, while manufacturing output rose for the fifth consecutive month, which is the best run since 2010. The release of the BoE MPC minutes on Jun-18 will be a big focus as there is 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.

    [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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