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By XE Market Analysis March 12, 2014 7:54 am
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    XE Market Analysis: North America - Mar 12, 2014

    Risk-off positioning was seen in the main currency markets, which means JPY and CHF outperformance and AUD underperformance, as China concerns hit natural resources, particularly copper, along with global stock markets. Copper futures have been slammed to a near four-year low as the unexpected dive China export data continued to reverberate, along with concerns of more corporate bond defaults. There is also reports that Russia is refusing all negotiations with Ukraine. Europe's STOXX 600 was showing were down 1%, the MSCI Asia Pacific index shed 1.5% and S&P 500 futures are showing a 0.2% decline in its overnight session. USD-JPY carved out a six-day low of 102.71. The yen's gain in turn exacerbated Japanese stock market losses as the shares of major exporters came under pressure, and the Nikkei underperformed with a 2.6% loss. The Aussie fell to an eight-day low against the USD, at 0.8924, which is about 80 pip loss on yesterday's London closing level. Elsewhere, EUR-USD made time in the mid-1.38s, while sterling came under some general pressure, highlighted by EUR-GBP punching above 0.8350.

    [EUR, USD]
    EUR-USD has been drifting moderately lower, though still remaining in a consolidation of the gains seen after last week's steep rally from the low 1.37s after the ECB upped growth forecasts while refraining from further monetary easing. Friday's much better than expected U.S. February jobs report put a lid on the rally, leaving a 29-month high at 1.3915. This level is now marked as a resistance, along with 1.3900. We're not keen on EUR-USD at these levels due to the continuing geopolitical tensions over the Ukraine and the fact that the U.S. jobs data supports the view of the Fed continuing its tapering of QE assets. Support comes in at 1.3825 and 1.3810.

    [USD, JPY]
    The yen has traded firmer in the context of a risk-off theme in Asian stock markets, driven by pronounced weakness in commodity markets on China slowdown concerns (following weak trade data). The yen's gain in turn exacerbated Japanese stock market losses as the shares of major exporters came under pressure, with the Nikkei underperforming with a 2.6% loss versus the 1.5% decline of the MSCI Asia Pacific index. USD-JPY carved out a six-day low of 102.71. Bigger picture, there is muted overall directional impetus in USD-JPY within the 100.00-105.00 range. BoJ policy would favour continued yen weakness, but the threat of China slowdown is an offsetting yen-supportive force, via the possible association of negative consequences on global stock markets (given the yen's normal inverse correlation with risk appetite). Support is at 102.50, and 101.00-101.11, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling has established a lower profile after deputy governor of the Monetary Policy Committee, Bean, on Monday said any further appreciation of the pound would not be particularly helpful in terms of facilitating a rebalancing towards net exports. The February BRC retail sales report also unexpectedly dropped by 1.0%. January industrial production showed the expected improvement, but real sector data like these are rear-view indicators. The Feb-27 low of 1.6616 is the next target.. Support is marked by this, 1.6600 and the Feb-24 low of 1.6583. EUR-GBP tested its Feb-6 peak of 0.8350, but has so far not broken it. We haven't been keen on Cable at these levels, thinking that the rally that's been seen since mid last year is likely over. We think the U.K. recovery will moderate, in part due to the generally firm levels of sterling, while on the U.S. side of the equation the strong February jobs report supports the view of the Fed continuing its tapering of QE assets.

    [USD, CHF]
    EUR-CHF has drifted back under 1.2200 in recent sessions as geopolitical risk remains over the Ukraine, which is returning support to the safe haven franc. China slowdown concerns are another factor, as this has driven a sharp drop in commodity markets this week. The recent cycle low of 1.2104 and 1.2100 are key support levels. SNB's Jordan said over the weekend that the central bank would defend the 1.2000 EUR-CHF limit if concerns about Ukraine drove the franc higher. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. The SNB has signalled that it would only consider removing it if inflation was much higher (CPI dipped back to -0.2% y/y in February)..

    [USD, CAD]
    USD-CAD logged a two-week low under 1.1000 last week only to rebound above 1.1100. In the bigger picture, we still think that the pair may be forming a potential double top formation, which for technical analysts is a classic trend 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 these developments 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 1.1000, ahead of 1.0955 (the Mar-7 low).

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