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By XE Market Analysis March 5, 2014 6:46 am
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    XE Market Analysis: North America - Mar 05, 2014

    The USD has been bid on the back of the 10 bp surge the U.S. Treasury yield saw yesterday (which has since been holding near 2.70%). USD-JPY logged a one-week high of 102.43, which brings the 50-day moving average at 102.53 into scope. EUR-USD sank to a new low for the week at 1.3707. There is talk to a large option expiry with a 1.3700 strike at today's New York cut, which might be imparting a gravitational pull to that that level. Perky Eurozone data had little impact. USD-CHF also made a new week high at 0.8893. Cable logged a week low earlier in the Asia session but has since held up relatively well, though above forecast U.K. services PMI outcome didn't have much impact. AUD popped higher on Aus GDP data but capped out shy of 0.9000.

    [EUR, USD]
    EUR-USD sank to a new low for the week at 1.3707 as the USD was bid on the back of the 10 bp surge the U.S. Treasury yield saw yesterday. There is also talk to a large option expiry with a 1.3700 strike at today's New York cut, which might be imparting a gravitational pull. Perky Eurozone retail sales and PMI data had little impact, though the euro fared better against the yen and the Swiss franc as these currencies continued to unwind safe haven premiums in sympathy with the abatement in geopolitical concerns over the Ukraine. The drop in EUR-USD fits our view as we have been thinking the euro's rally last week following the inflation data was an over-reaction as the 0.8% HICP outcome is hardly going to change the ECB outlook, and speculation of the central bank making further monetary easing will likely remain. We also see the Fed remaining on its tapering course. The bigger picture technical view is bearish following multiple rejections from 1.38-plus levels over the October to January period.

    [USD, JPY]
    USD-JPY logged a one-week high of 102.43, which brings the 50-day moving average at 102.53 into scope. EUR-JPY also made a week high has global stock markets (ex-China) continued to recoup recent losses as the recent bout of risk-off positioning unwinds in sympathy with the abatement in geopolitical concerns over the Ukraine. Bigger picture, there remains muted overall directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown (and lingering geopolitical tensions), with the associated threat of negative consequences on global stock markets, is an offsetting yen-supportive force. The 102.50-55 region presents near-term resistance ahead of last Friday's three-week peak at 102.83. On the downside, the 200-day moving average is sitting at 100.92, and the 100.00 we mark as a major support level.

    [GBP, USD]
    We remain wary about the sustainability of GBP-USD's rally that's been in place since last July, while EUR-GBP looks to be building a base above 0.8200 level. A key support zone is in EUR-GBP given by 0.8157-0.8200, a region that has marked a series of daily lows since mid-January. Resistance in Cable is pegged at 1.6700 and 1.6768 (Friday's high), ahead of 1.6800-1.6822. From a fundamental perspective, the recent phase of above-trend U.K. growth is likely to moderate, partly due to the rich levels of sterling, which was flagged by a weak export orders figure in the February manufacturing report. The BoE has already highlighted sterling as a concern, and we can expect MPC members to sound out dovish remarks to the effect. Meanwhile, on the USD side of the equation, we see the U.S. economy remaining on a recovery path and the Fed continuing to taper QE assets. The BoE's MPC meets for its March meeting this week, though this should once again be a non-event for markets, at least until the minutes to the meeting are released on Mar-19, as no change in policy is a near certainty and the MPC is not likely to issue a statement.

    [USD, CHF]
    EUR-CHF nudged out a new rebound high of 1.2195, but the market lacked the muster for a test of 1.2200 and the cross ebbed back slightly. The new high reflected a continued unwind of risk-off positioning as markets adjust to the abatement in geo-political tensions over the Ukraine crisis. There is now some distance from the fresh cycle low of 1.2104 that was seen on Monday, 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. SNB-speak this 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. This price action has been accompanied by a drop in upside momentum, and together point to a possible end of the bullish phase that was seen between October and January, in turn 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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