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By XE Market Analysis May 22, 2014 7:10 am
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    XE Market Analysis: North America - May 22, 2014

    The AUD rose and the JPY weakened as risk appetite picked up in Asia following a much stronger than expected China PMI release, which came in at 49.7, a five-month high and well up on the Reuters median for an unchanged 48.1. The MSCI Asia Pacific equity index was showing a 1.2% gain as of late PMI session in Tokyo. This encouraged the market to buy AUD, which snapped a three-day decline and rose above yesterday's peak at 0.9252 to 0.9274. AUD-JPY surged as USD-JPY lifted above 101.50 to a peak of 101.68, a new high for the week having recovered from Wednesday's 100.82 low. The yen followed its usual inverse correlation with risk appetite and stock market direction. Data also showed that Japanese demand for foreign bonds is at a nine-month high. Elsewhere, the USD posted marginal gains versus the EUR and GBP. The FOMC minutes showed the Fed openly discussing its options for policy normalization, but without signalling anything imminent.

    [EUR, USD]
    EUR-USD recovered over 30 pips after dipping to a low of 1.3655 in the wake of the overall sub-expectations PMI data out of France and Germany, leaving the earlier low at 1.3652 and yesterday's three-month low at 1.3633 unchallenged. Good selling interest is reported into 1.3700, and price action still looks decidedly bearish on the daily chart, characterised by a series of lower highs and lower lows following the sharp two-day sell-off that was seen on May 8th and 9th following ECB Draghi's signal that more easing is in the pipeline. We anticipate EUR-USD will return to levels around 1.3500 over the coming weeks, which will cover the period of the ECB's June meeting, Eurozone May inflation data, and U.S. May payrolls report.

    [USD, JPY]
    The JPY weakened as risk appetite picked up in Asia following a much stronger than expected China PMI release, which came in at 49.7, a five-month high and well up on the Reuters median for an unchanged 48.1. The Nikkei rose just over 2% while the MSCI Asia Pacific equity index was showing a 1.2% gain in late session. This encouraged the market to sell yen and USD-JPY lifted above 101.50 to a peak of 101.68, a new high for the week having recovered from Wednesday's 100.82 low. The yen followed its usual inverse correlation with risk appetite and stock market direction, while data also showed that Japanese demand for foreign bonds is at a nine-month high. 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 is lower in the wake of the GDP and government borrowing figures. The only surprise was the jump in borrowing April. EUR-GBP, which saw a fresh 17-month low earlier at 0.8084, jumped back above 0.8100. Cable fell back below 1.6900, making this the second consecutive day the pair had failed to hold gains above this level. Bigger picture, we remain sterling bullish, favouring the short EUR-GBP route and targeting 0.8000. Next domestic focus is the CBI industrial trends .

    [USD, CHF]
    EUR-CHF has settled in the low 1.22s. 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 recovered the 1.0900 handle. The pair has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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