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By XE Market Analysis March 31, 2014 7:14 am
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    XE Market Analysis: North America - Mar 31, 2014

    The principle move was a EUR-JPY rally that reflected mostly across-the-board yen weakness and a lesser degree of general euro firmness. This brought associated gains in USD-JPY and EUR-USD, leaving the USD on a mixed footing versus its major counterparts. EUR-JPY cracked above 142.00 for the first time sine Mar-13, extending to a peak of 142.42, which is over a big figure above the Tokyo low. USD-JPY punched above 103.00 to a three-week high of 103.28. Various factors were being cited on market commentaries. One is the backdrop buoyant stock markets, to which the yen normally correlates inversely with. Another was the passing of the Japan's financial year-end today, which means the passing of associated yen-supportive repatriation flows. Yet another was that EUR-JPY's post Eurozone dip earlier brought the cross to a large buy order around 141.60. EUR-USD, meanwhile, saw very whippy trade, having dropped quite sharply to a 1.3722 low before promptly about-turning and rallying on EUR-JPY's coattails to a peak of 1.3792. A drop in Eurozone headline HICP inflation to just 0.5% was thus overlooked, even though is should feed speculation for ECB implementing QE.

    [EUR, USD]
    EUR-JPY cracked above 142.00 for the first time sine Mar-13, extending to a peak of 142.42, which is over a big figure above the Tokyo low. The move was largely associated with a generally yen drop. EUR-USD saw very whippy trade, having dropped quite sharply to a 1.3722 low before promptly about-turning and rallying on EUR-JPY's coattails to a peak of 1.3792. A drop in Eurozone headline HICP inflation to just 0.5% was thus overlooked, even though is should feed speculation for ECB implementing QE. Given the ECB stance, we continued to advocate a bearish view of EUR-USD, despite the gain today, so we would prefer selling into strength. Initial resistance is marked at 1.3821 (Mar-26 high), while we place key resistance and risk at 1.3875-1.3900.

    [USD, JPY]
    USD-JPY punched above 103.00 to a three-week high of 103.28. EUR-JPY cracked above 142.00 for the first time sine Mar-13, extending to a peak of 142.42, which is over a big figure above the Tokyo low. Various factors were being cited on market commentaries. One is an unexpected 2.3% m/m drop in weak Japanese production, though this didn't cause much impact at its release in Tokyo as it was mostly blamed on bad weather. Another is the backdrop of buoyant stock markets, to which the yen normally correlates inversely with. Another was the passing of the Japan's financial year-end today, which means the passing of associated yen-supportive repatriation flows. Yet another was that EUR-JPY's post Eurozone dip earlier brought the cross to a large buy order around 141.60. We favour USD-JPY's upside, targeting an eventual test of 105.00.

    [GBP, USD]
    There has been a sea change in sentiment for sterling over the last week. Incoming data have shown that economic recovery remains robust and we have had some relatively hawkish BoE-speak. The central bank's FPC (unit responsible for financial stability) said that it is "vigilant to emerging vulnerabilities," highlighting property market risks. Overall, the evident durability of the U.K. recovery, aided by a pick-up in conditions on the continent and recovering health in the banking sector, has underpinned sterling despite some recent protestations from some policymakers about the high level of sterling. We anticipate EUR-GBP will re-test the 0.8200 level and the Feb-16 low of 0.8157 over the coming weeks. We would also suggest sterling bulls consider GBP-JPY.

    [USD, CHF]
    EUR-CHF has drifted lower after making a one-month peak of 1.2234 on Wednesday. The up move had reflected further unwinding of the Swiss franc's safe-haven premium. 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, but this assumes 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 broken below some key support levels over the last week, on route to a three-week low within a whisker of 1.1000. The strength in the Canadian dollar tallies with notably gains that have been seen in the AUD and NZD currencies. This in turn reflects a shift to a less pessimistic global outlook (to which the dollar-bloc currencies are sensitive to) than we saw recently with regard to the China slowdown theme (now offset by expectations of stimulus), and the threat from the geopolitical situation between Russia and the West. USD-CAD's mid-March surge to new cycle high of 1.1278 now looks to have been false breakout. We don't advise getting too carried away with a bearish USD-CAD view as the Fed vs BoC stance remains supportive. Key supports are pegged at 1.0955 (the Mar-6 low) and 1.0910 (the Feb-19 low).

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