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By XE Market Analysis May 7, 2015 7:39 am
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    XE Market Analysis: North America - May 07, 2015

    EUR-USD cracked to a new 10-week high at 1.1392, subsequently settling around 1.1350. The move was driven by an acceleration in the narrowing of the U.S. T-note versus Bund spread, which dropped below 155 bp -- more than 10 bp narrower than a day ago, and over 20 bp lower than levels seen last week. This in turn was driven an ongoing surge in Bund yields, which climbed to 0.79%, having been at a record low of 0.05% just three weeks ago. USD-JPY slumped to the low-119s. Sterling is lower today against both the dollar and euro as UK election day dawns. AUD-USD saw choppy trade, though settled net lower on the day following an unexpected decline in Australian employment figures. The data effectively endorsed the RBA's decision to cut rates earlier this week, as the mining sector job declines was a prime cause of the data miss.

    [EUR, USD]
    EUR-USD cracked to a new 10-week high at 1.1392, subsequently settling around 1.1350. The move was driven by an acceleration in the narrowing of the U.S. T-note versus Bund spread, which dropped below 155 bp -- more than 10 bp narrower than a day ago, and over 20 bp lower than levels seen last week. This in turn was driven an ongoing surge in Bund yields, which climbed to 0.79%, having been at a record low of 0.05% just three weeks ago. There were no strong new leads, though policymakers involved in the Greece versus creditor bailout negotiations sounded positive remarks, which saw the Greek 10-year benchmark bond yield dip back below 11%.

    [USD, JPY]
    USD-JPY slumped to the low-119s, driven by dollar underperformance. EUR-JPY, meanwhile, edged out a new four-month peak, and the yen has also seen weakness against the dollar bloc currencies. Outside the case for USD-JPY, the yen has been trading with a broadly soft bias since the BoJ last week lowered its inflation and growth forecasts for both the current and next fiscal years in its updated median-term projections. The revised forecasts will keep open the possibility of the BoJ making further stimulus later in the year. USD-JPY support is 119.20 and 119.00. Bigger picture, the pair is trending sideways, having orbited the 120.00 level since December. We expect an eventual breakout to the topside as the U.S. economy recovers traction following its Q1 soft patch.

    [GBP, USD]
    Sterling is lower today against both the dollar and euro as UK election day dawns. Pre-election polls have been remarkably consistent, putting the right-leaning Conservative Party in the lead, but with support well short of an outright majority, leaving a good possibility that a left-leaning Labour-SNP (Scottish National Party) coalition government will form. The SNP wants this, and while Labour has not so far made any hint of commitment, it will presumably not want too see a minority Conservative government take up the reigns. There are a lot of uncertainties, but one thing is for sure is that this will be a ground breaking election, and the weeks ahead look set to be politically chaotic by UK standards. We expect sterling will be affected by this, and anticipate Cable will see sub-1.5000 levels again before long.

    [USD, CHF]
    EUR-CHF has ebbed back under 1.0400 after making a one-month high at 1.0508 last week, as there remains little sings of breakthrough in Greek negotiations with its creditors. The SNB is amid an ongoing fight to curtail EUR-CHF's downside. The central bank last month expanded the number of groups subject to negative rates on deposits at the central bank in a fresh effort to curtail demand for the franc. The SNB said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." SNB Chairman Jordan said more recently that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD set a new three-month low at 1.1940 on Wednesday before rebound above 1.200. Broader dollar weakness and dollar bloc outperformance had driven the move. Bigger picture, the fall in USD-CAD from levels above 1.2700 during the mid-to-latter part of April is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, and the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 remains in play, yet to be broken decisively.

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