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By XE Market Analysis March 20, 2014 8:32 am
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    XE Market Analysis: North America - Mar 20, 2014

    The USD extended higher against the EUR and some other currencies during the European AM session after pausing the post-FOMC rally during Asia. EUR-USD led the way, dropping to a two-week low of 1.3762, which is nearly 50 pips under yesterday's New York closing low. Most other USD pairings were firmer relative to yesterday's close but had still remained below the post-FOMC highs. Cable pressed back below 1.6520 but had so far remained above its Tuesday low of 1.6508. USD-JPY was comparatively lacklustre, firming to 102.51 but remaining shy of yesterday's peak at 102.68. AUD-USD saw a similar price action. There wasn't much by the way of market-moving data or news. Eurozone lawmakers finally managed to reach a deal on the Single Resolution Mechanism, and Spanish and French auctions went well. The SNB meanwhile left policy unchanged, as expected, and reaffirmed its commit to the Swiss franc limit peg against the euro.

    [EUR, USD]
    EUR-USD has extended to fresh two-week lows as the dollar rallies after Fed boss Yellen said there will be about a six-month period between the time when the Fed's bond buying program ends (late this year) and when the first rate hike will be seen. This followed the as-expected announcement of a further USD 10 bln in tapering of QE assets. We had been flagging the risk of dollar gains following the FOMC. Our standing target of 1.3800 remains. Resistance comes in at 1.3860 and 1.3900..

    [USD, JPY]
    USD-JPY remains firm on Thursday in the wake of the Fed's unexpected rate hike signal, thought the 102.68 post-FOMC peak had remained unchallenged at the time of writing. In the bigger picture, USD-JPY looks stuck within a 100.00-105.00 band. 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 101.00-101.25, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable made a five-week low of 1.6501 in the wake of the Fed's unexpected rate hike signal, which has seen the dollar rally. The pound, meanwhile, firmed against the euro, recovering some recently lost ground. The latest CBI industrial trends survey highlighted an area of concern for U.K. policymakers as the export orders balance dropped to -10 from -1 in February. Export orders can be volatile month-to-month, but the data nevertheless highlights the fact that recovery has been too much fuelled by rising consumption and not enough by trade. This issue also links with the minutes to the BoE MPC's March meeting, which showed that MPC members are concerned by the high level of the pound. We anticipate further declines in Cable, targeting 1.6450. Initial resistance is marked at 1.6540.

    [USD, CHF]
    EUR-CHF has recovered to the 1.2200 area. The SNB's decision to leave monetary policy unchanged and the Swiss franc limit peg against the euro in place had no market impact. The CHF has unwound a portion of its safe-haven premium following the placating tone of Russia's Putin earlier in the week, which saw geopolitical tensions over Crimea recede. The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. SNB's Jordan had said last week that the central bank would defend the 1.2000 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 surged above the late January major trend peak at 1.1224, making a new cycle high of 1.1278 so far. This reaffirms the bullish trend that was seen between October and January. Support comes in at 1.1200-1225, ahead of 1.1100-15. We target 1.1350. The unexpected show of hawkishness from the U.S. Fed, which contrasts with the dovish stance of the BoC, saw yield differentials spike in favour of the U.S. dollar.

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