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By XE Market Analysis March 26, 2014 7:39 am
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    XE Market Analysis: North America - Mar 26, 2014

    Most of the main USD pairings remained well within their respective Tuesday ranges. The AUD and GBP were exceptions, with Cable managing to eke out a high for the week at 1.6557 following upbeat remarks from BoE MPC member Weale, while AUD-USD rallied quite strongly to a fresh four-month peak of 0.9235. The trigger for the Aussie was a speech by RBA Governor Stevens, whose refrain from talking down the currency was taken by market participants as a tacit sign of a more accepting attitude to what the RBA previously described as a historically weak currency. There is also speculation that China will announce fresh stimulus at some point, which has been behind the recent gains. Elsewhere, EUR-CHF popped to one-month high of 1.2234, and USD-CHF also drifted higher in a move that reflected a further unwinding of the Swiss franc's safe-haven premium. EUR-USD ebbed moderately lower, to the 1.3800 area. USD-JPY flat-lined around 102.25-35.

    [EUR, USD]
    The euro has consolidated in around 1.3800 after some whippy price action this week. We still prefer a bearish view of EUR-USD as the ECB is likely to remain in dovish mode for sometime yet given the deflation threat and concerns about euro strength (as pointed to by Draghi last week), while we anticipate the U.S. economy to strengthen in Q2. Resistance is marked at 1.3876 and 1.3900.

    [USD, JPY]
    USD-JPY continues to seen featureless trade, holding around 102.30. More generally, 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 and 101.34, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable managed to eke out a high for the week at 1.6557 following upbeat remarks from BoE MPC member Weale, who said that wage growth is picking up and that, "my sense is things are going quite well." This extended Cable's recovery after making a new five-week low of 1.6460 on Monday following a two-week declining phase. We continue to target Cable to 1.6400, with our former long-standing 1.6500 having been met. We would see this as part of a bigger-picture correction after the strong rally phase from July last year to February this year. Fundamentally we anticipate a moderation in the pace of U.K. recovery, while we anticipate a pick-up in the U.S. recovery in Q2.

    [USD, CHF]
    EUR-CHF rose to a new high of 1.2234, which is the highest level seen since Feb-19. USD-CHF is also higher. The move reflects a further unwinding of the Swiss franc's safe-haven premium as tensions with Russia over the Crimea and Ukraine issue haven't, so far, been as bad as feared. Gold and other safe haven assets have also recently seen premiums deflate (gold prices have in fact risen over the last couple of days, but this follows a 5%-plus decline over the last 10 days). The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. We see potential for a recovery to the 1.2300-1.2400 area, assuming there are no renewed flare-ups in geopolitical tensions. The 1.2200 is now marked as a support level. SNB's Jordan earlier in the month 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 has settled lower after surging last week through the late January major-trend peak at 1.1224 to make a new cycle high of 1.1278. This reaffirmed the bullish trend that was seen between October and January. Support comes in at 1.1100-15. We target 1.1350, though more tentatively now and would need to see 1.1100 hold. The unexpected show of hawkishness from the U.S. Fed at the recent FOMC contrasted with the dovish stance of the BoC, and has seen yield differentials move in favour of the U.S. dollar.

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