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By XE Market Analysis March 6, 2014 6:48 am
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    XE Market Analysis: North America - Mar 06, 2014

    The main movements were JPY weakness and AUD strength in otherwise quiet trade ahead of the BoE and ECB announcements. The JPY fell for the third consecutive day as its usual inverse correlation with risk appetite persisted, with stocks trading higher in both Asia and Europe. USD-JPY rose to 102.81, breaching above its 50-day moving average and coming within two pips of the Fe-21 peak. EUR-JPY also logged a two-week high to 141.18. The weakness of the yen contributed to driving the Nikkei to an outperforming 1.6% gain verses the 0.8% advance the MSCI Asia Pacific index saw. EUR-USD was steady at familiar levels in the low-to-mid 1.37s, with the market making time ahead of the ECB announcement given the possibility of non-conventional monetary easing. GBP-USD was equally steady in the low 1.67s ahead of the BoE announcement, though this should be a non-event for markets as no policy change or statement are widely expected. AUD-USD popped above 0.9000 for the first time since Feb-26 following robust Australian retail sales data and an unexpected rise in the trade surplus.

    [EUR, USD]
    EUR-USD has been steady, making time ahead of the ECB announcement given the possibility of non-conventional monetary easing. The pair is at familiar levels in the low-to-mid 1.37s. No one is seriously expecting a rate cut, so the key will be whether the ECB announces an end to SMP sterilisation. The speculative market is carrying a light net short position into the meeting on this view. The ONDA forex platform is showing their clients are running a about a 30% - 70% long to short ratio. Should the ECB disappoint on the SMP sterilization, we could expect a short-covering rally in EUR-USD, although probably nothing too major as short positioning is light and the central bank will likely sound out some dovish rhetoric. Should the ECB announce the end of SMP sterilization, we would look for EUR-USD to breach yesterday's 1.3707 low and 1.3700, with scope perhaps to 1.3650. The proximity of the U.S. February payrolls release tomorrow would likely crimp follow through in this scenario. The bigger picture technical view for EUR-USD is looking bearish following multiple rejections from 1.38-plus levels over the October to January period.

    [USD, JPY]
    USD-JPY rose to 102.81, breaching above its 50-day moving average and coming within two pips of the Fe-21 peak. EUR-JPY also logged a two-week high to 141.18. An ongoing stock market rally in Asia guided the yen lower, which in turn fuelled further gains in the domestic equity market, helping to drive the Nikkei to an outperforming 1.6% gain as the MSCI Asia Pacific logged a 0.8% advance. Bigger picture, there remains muted overall directional impetus in USD-JPY. BoJ policy would favour continued yen weakness, but the threat of China slowdown (and lingering geopolitical risk), with the associated negative consequences on global stock markets, is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83, ahead of 103.00. Support is at 102.00, and 100.96-101.00, the former of which marks the position of the 200-day moving average..

    [GBP, USD]
    Cable has flipped back above 1.6700 and EUR-GBP also made several attempts lower, but has remained shy of 0.8200. A key support zone in EUR-GBP is 0.8157-0.8200, a region that has marked a series of daily lows since mid-January. There seems to be a bullish view on sterling in market commentaries, and in particular a bearish one for EUR-GBP given the risk of further ECB easing measures. The U.K. February PMI surveys this week showed continued solid expansion while the composite PMI was notable for showing the fastest rate of jobs growth since the PMI data series started in January 1998. This will be a focus of the BoE as at some point the improving employment market will feed through to higher pay awards, and therefore raise the scope for domestically generated inflation risk, though there has been little sign of this yet..

    [USD, CHF]
    EUR-CHF make a new rebound high of 1.2201. The new high reflects 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. Support comes in at 1.1020-25.

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