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By XE Market Analysis May 7, 2014 6:54 am
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    XE Market Analysis: North America - May 07, 2014

    No big moves today were seen during the Asian and European AM sessions. USD-JPY clocked a three-week low of 101.43 during Tokyo trade before settling back above 101.50. Hefty Nikkei losses amid a general risk-off environment along with the minutes to the Apr 7-8 BoJ meeting supported the yen. The minutes signalled that the central bank doesn't see that an expansion in its already aggressive policy would be necessary. EUR-USD ebbed to a 1.3914 low before returned to near net unchanged levels around 1.3930. The market should have by now discounted a no-change decision from the ECB tomorrow, with recent data out of the Eurozone having seen any expectations for a 'big bazooka' policy easing fade. Cable consolidated in the high 1.69s while EUR-GBP logged a two-month low of 0.8208 before finding a footing. Sterling should remain underpinned into next Wednesday's BoE Inflation Report, which should bring upward revision to inflation and growth projections and generally present a less dovish, more hawkish tone following a run of strong U.K. data. Elsewhere, NZD-USD tumbled over 50 pips, to levels below 0.8700 after RBNZ's Wheeler said that the NZ dollar is overvalued. The AUD was also softer, not liking the risk averse backdrop. AUD-USD softened below 0.9350.

    [EUR, USD]
    We remain committed to a bearish EUR-USD view despite recent gains. We picked up from market commentaries that there is a view that the market has already discounted a no-change decision from the ECB tomorrow, and for this reason the euro has run out of upside steam. Recent data out of the Eurozone has seen any expectations for a 'big bazooka' policy easing fade, which is an explanation for the recent bid tone in EUR-USD despite some position surprises in U.S. data of data, particularly the April payrolls report. There is also conjecture, as highlighted in a GS research note this week, that China reserve management may have been a factor. Technically, a decline and daily close back under 1.3900 would seem bearish after failing to reach the 1.3966 major-trend peak. Support is marked by previous daily highs in the 1.3900-1.3905 zone.

    [USD, JPY]
    USD-JPY fell below 101.50 for the first time in three weeks, while EUR-JPY clocked a one-week low. Hefty Nikkei losses amid a general risk-off environment along with the minutes to the Apr 7-8 BoJ meeting supported the yen. The minutes signalled that the central bank doesn't see that an expansion in its already aggressive policy would be necessary. Former BoJ executive director Hayakawa also warned that further BoJ easing would only bring forward a collapse in JGBs, and that the central bank was in any case already winning the battle to drive CPI higher. Bigger picture USD-JPY remains entrenched 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.

    [GBP, USD]
    Sterling should remain underpinned into next Wednesday's BoE Inflation Report, which should bring upward revision to inflation and growth projections and generally present a less dovish, more hawkish tone following a run of strong data. EUR-GBP logged a two-month low earlier, at 0.8208, while Cable has consolidated in the upper 1.69s, looking set made a break above 1.7000. The 1.7000 is a big psychological level and is reported a big option barrier level.

    [USD, CHF]
    EUR-CHF edged below the Apr-28 low and toward the 1.2150 level. Lower stock markets and the situation in Ukraine have inflated the franc's safe-haven premium. The cycle low of 1.2104 and 1.2100 are considered key support levels. 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 extended lower yesterday, below 1.0900 after giving up the chase above 1.1000 last week. The Arp-9 three-month low of 1.0858 is now back in 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. The bias has tilted to the downside, toward 1.0700.

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