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By XE Market Analysis March 3, 2014 6:44 am
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    XE Market Analysis: North America - Mar 03, 2014

    A risk-off theme prevailed on an escalation in geopolitical tension over Ukraine, a test firing of two missiles by North Korea, and a eight-month low in the official China manufacturing PMI. The USD was mixed, up on the CAD, net flat against the EUR and GBP, while lower against the outperforming JPY and the CHF in the usual currency risk-off pattern. Stocks in Europe and Asia dove (STOXX 600 down 1.8%, MSCI Asia Pacific down 0.7%), and gold rallied (up 1.8%) along with the U.S. 10-year T-note (driving the yield down 4 bp at 2.60%). USD-JPY hit a near four-week low of 101.21 while EUR-JPY dove back below 140.00. EUR-CHF fell to a fresh cycle low of 1.2104, which is the lowest level seen since June last year. EUR-USD was also lower, dipping to 1.3756 before settling around 1.3780-90, which is fractionally lower than Friday's close. AUD-USD made a one-month low of 0.8890 before recovering to near unchanged levels around 0.8925. Sterling traded firmer on U.K. data, which included an above-forecast manufacturing PMI and mortgage approvals. GBP-USD popped up by about 50 pips in making 1.6751, since settling around 1.6730. Final February Eurozone manufacturing PMI was revised slightly higher, but to little market impact.

    [EUR, USD]
    The euro traded slightly weaker, giving back some of the gains made on Friday following perkier than expected inflation data out of the Eurozone. The final February Eurozone manufacturing PMI was revised slightly higher, to 53.2 from 53.0, but to little market impact. EUR-JPY and EUR-CHF dropped, driven by a risk-off theme on escalating geopolitical tensions over Ukraine and weak China data, which had the effect of boosting the yen and Swiss franc. EUR-CHF fell to a fresh cycle low of 1.2104, which is the lowest level seen since June last year, while EUR-JPY fell back below 140.00. EUR-USD dipped to 1.3756 before recovering back to the 1.3790 area, which is fractionally lower than Friday's close. We think the euro's rally last week following the inflation data was an over-reaction as the 0.8% HICP rate outcome is hardly going to change the ECB outlook, and speculation of the central bank making further monetary easing will likely remain. Good selling interest is reported above 1.3800, and it should be noted that there were multiple rejections from 1.38-plus levels over the October to January period.

    [USD, JPY]
    The JPY outperformed in currency markets today following the usual risk-off pattern due to an escalation in geopolitical tension over Ukraine, a test firing of two missiles by North Korea, and a eight-month low in China manufacturing PMI. USD-JPY hit a near four-week low of 101.21 while EUR-JPY dove back below 140.00. BoJ chief Kuroda said that the easing policy is having the intended effect. Japan's capex data, which showed a 4.0% gain in headline spending but a 0.3% decline in investment spending, had little market impact. Bigger picture, there still remains an overall muted directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown (and now geopolitical tensions), with the associated negative consequences on global stock markets, is an offsetting yen-supportive force. The 102.00 level has now reverted as resistance, ahead of 102.50 and last Friday's three-week peak at 102.83. Support is at 101.00, ahead of major support at 100.00-100.88, the latter of which is the 200-day moving average.

    [GBP, USD]
    Sterling traded firmer on U.K. data, which included an above-forecast manufacturing PMI and mortgage approvals. GBP-USD popped up by about 50 pips in making 1.6751, since settling around 1.6730 after stalling shy of Friday's 1.6768 peak. EUR-GBP dipped about 20 pips to a 0.8227 low, finding support just ahead of Friday's 0.8225 low. Below here we have a key support zone, marked by 0.8157-0.8200, a region that has marked a series of daily lows since mid-January. There were caveats in the data today, which perhaps explains why follow-through buying of the pound proved to be limited. The PMI report showed export orders declining, which is likely due to the strength of sterling, something that the BoE has highlighted as a concern. Also, the BoE lending figures revealed a further decline in business investment, albeit at a declining rate. We remain wary about the sustainability of GBP-USD's rally that's been in place since last July.

    [USD, CHF]
    The CHF has been underpinned by a risk-off theme that has prevailed on an escalation in geopolitical tension over Ukraine, a test firing of two missiles by North Korea, and an eight-month low in manufacturing PMI for China. EUR-CHF fell to a fresh cycle low of 1.2104, which is the lowest level seen since June last year. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. Recent SNB-speak month reaffirmed its strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign).

    [USD, CAD]
    USD-CAD looks to be forming a potential double top formation, which is a classic reversal pattern. The pair's capping out just shy of 1.1200 on Feb-21 left the late January major trend peak at 1.1224 unchallenged. There price action has been accompanied by a drop in upside momentum, and together these point to a possible end of the bullish phase that was seen between October and January, implying potential for a sustained retracement or a period of stasis. Near-term support comes in at 1.1040-50, ahead of 1.1020-25.

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