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By XE Market Analysis May 19, 2014 7:07 am
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    XE Market Analysis: North America - May 19, 2014

    The USD established was softer versus the JPY and EUR, and was more flat-to-mixed against other currencies. USD-JPY broke below the Mar-3 low to make a three-month low of 101.10. EUR-JPY and other yen crosses were also lower as the yen followed its usual inverse correlation with risk appetite, as weak house price data out of China fed slowdown concerns in Asia's biggest economy. This help drive Asian stocks lower, and markets in Europe, despite news that Putin had ordered troops to pullback from Ukraine's border. Unexpected strength in machine orders data out of Japan were overlooked. China house prices slowed to an 11-month low rate of +6.7% y/y in April, down from 7.7% in March. The only data release came out of the U.K., which reported a further acceleration in Rightmove house price inflation in May. The AUD didn't like the risk-off environment, and weakened against most other currencies as Australian stock markets underperformed and with industrial resources prices declining. Iron ore futures fell below $100 for the first time since 2013. AUD-USD dipped to the 0.9350 area while AUD-JPY saw a two-week low. EUR-USD settled around 1.3710-20 after rising from the sub-1.3700 levels that were seen during early Asia.

    [EUR, USD]
    EUR-USD's early London bid faltered as good selling interest was seen above 1.3720. The pair left a peak of 1.3723 and has since settled around 1.3715. It remains the case that there has been a distinct lack of substantive rebounds since the ECB-initiated drop on May-8. The more defensive tone in Eurozone peripheral bond markets and recent underperformance in European stock markets, despite expected ECB easing at the upcoming meeting in June, is reflecting waning foreign investor interest and explains the soggy price action in the euro. Incoming U.S. data, meanwhile, has and should continue to show recovery from the weather-affected Q1 performance. We are expecting good outcomes in this week's jobless claims, leading indicators and home sales data. We anticipate EUR-USD will return to levels around 1.3500 over the coming weeks, which will bring the ECB meeting and U.S. May payrolls report.

    [USD, JPY]
    USD-JPY broke below the Mar-3 low to make a three-month low of 101.10. EUR-JPY and other yen crosses were also lower as the yen followed its usual inverse correlation with risk appetite, as weak house price data out of China fed slowdown concerns in Asia's biggest economy. This help drive Asian stocks lower. Unexpected strength in machine orders data out of Japan were overlooked. Bigger picture, USD-JPY still 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 trade has been quiet ahead of key data due later this week, including April inflation figures (Tuesday), official retail sales for April (Wednesday), and the second estimate of Q1 GDP (Thursday). The BoE minutes to the April MPC meeting are also up (Wednesday). We expect headline CPI to tick higher, to 1.7% y/y from March's 1.6%, which should prove to be the cycle nadir, and a solid retail sales outcome, as portended by the already released BRC survey. GDP is expected to be confirmed at 0.8% q/q and 3.1% q/q. The MPC minutes should reveal growing divergence among members on the output gap, but should still show unanimous votes to leave policy unchanged. Overall, the data and minutes should be neutral-to-positive for sterling, and we recommend that bullish views would be better expressed via the EUR-GBP route rather than Cable.

    [USD, CHF]
    EUR-CHF has settled around the 1.2210-15 region. The cross recently recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are 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 settled in the mid 1.08s. The pair has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels, but a moderate bear trend seems to be emerging. The still-dovish outlook for BoC policy, however, seems to be putting a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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