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By XE Market Analysis May 6, 2014 6:53 am
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    XE Market Analysis: North America - May 06, 2014

    The USD came under general pressure, led by EUR-USD and Cable following strong data out of the Eurozone and the U.K. EUR-USD rallied on upside surprises in Italian and Spanish PMI numbers, peaking 1.3931, a seven-week high and nearly 50 pips up on levels seen at the London opening. The break of 1.3900-1.3905 has swung the 1.3966 major-trend peak back into scope. Cable lifted above 1.6950 for the first time since 2009 following a much stronger than anticipated U.K. Markit services PMI outcome, the latest in a series of survey data that have been signalling a mini-revival in the pace of economic expansion. Elsewhere, USD-JPY ebbed back under 102.00 during the London AM following a quiet Asia session, where both Tokyo and Hong Kong centres had been closed. AUD-USD rose back above 0.9300. The RBA announced unchanged policy today and reaffirmed its neutral stance. USD-CAD dipped under 1.3500.

    [EUR, USD]
    EUR-USD popped higher on the Eurozone data, specifically the upside surprises in Italian and Spanish PMI numbers. Signs of improvement in the troubled southern Eurozone periphery tend to go down well in markets. The euro logged a peak of 1.3931, a seven-week high and nearly 50 pips up on levels seen at the London opening. The break of 1.3900-1.3905, the latter level being the Apr-11 peak, will likely be noted as a bullish development by technical analysts, and the 1.3966 major-trend peak, which was clocked in March, has now swung back into scope. We have essentially been seeing a pricing-out in chances for aggressive ECB easing measures, though the bullish market will likely pause into the central bank's meeting and press conference on Thursday.

    [USD, JPY]
    USD-JPY dipped back under 102.00 amid general dollar softness. The Tokyo market had been closed today. The pair remains amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year. Fundamentals seem more bullish, however, as Fed and BoJ policy paths are likely to become more divergent.

    [GBP, USD]
    Sterling rallied on a strong PMI data out of the U.K., with the services reading for April rising to a nine-month peak of 58.7, well up on the market expectation for an unchanged 57.6. Cable lifted about 20 pips to the 1.6952 area, a modest move but this still marks a new five-year peak. Sterling also traded moderately firmer against the euro and yen. We have been targeting 1.7000 in Cable. Incoming survey data have signalled a mini-revival in the pace of economic expansion with the implication that the BoE is increasingly likely to be the first major central bank to tighten policy following the multi-year policy stasis.

    [USD, CHF]
    EUR-CHF dipped and matched the Apr-28 low on Monday as the Swiss franc safe-haven premium rose as the situation in Ukraine continued to deteriorate. The cycle low of 1.2104 and 1.2100 are considered key support levels. While situation in the Ukraine remains a concern, and a potential supportive factor for the CHF, the threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying to some extent. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD gave up the chase above 1.1000 and slipped to around 1.0950. There are reports that oil settlement inflows have underpinned the Canadian currency in a relatively illiquid market. There doesn't appear to have been a fundamental driver. The Arp-9 three-month low of 1.0858 now swings back into view. Bigger picture, USD-CAD has been in a consolidation phase since late January following a four-month rally period from sub-0.9700 levels. We'd need to see daily and weekly closes below 1.1000 to support the idea that a trend reversal is on the cards.

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