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By XE Market Analysis May 29, 2014 7:47 am
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    XE Market Analysis: North America - May 29, 2014

    The dollar was generally softer following the 7 bp drop in the 10-year T-note yield yesterday, which declined by a further 1 bp in overnight trade. EUR-USD briefly interrupted this theme by dropping to a fresh three-month low of 1.3586 during the early London AM, but the pair subsequently rebounded by nearly 40 pips to levels around 1.3620. There were no fresh news developments of note, and trade was pretty thin with parts of Europe out for the Ascension Day holiday. USD-JPY fell to a one-week low of 101.46, subsequently remaining heavy around the 101.50-55 area. A narrowing in the 10-year U.S. Treasury versus JGB yield spread, despite the JGB yield making a one-year low of 0.565% today, drove the move. BoJ-speak by Shirai was also upbeat, although he did say it will take longer than two years to achieve the 2% inflation target. Elsewhere, Cable was moderately higher just ahead of the New York open, around 1.6720. AUD-USD outperformed, rising above 0.9300 for the first time in nine days.

    [EUR, USD]
    EUR-USD rebounded nearly 40 pips after making a three-month low of 1.3586 during the early London AM today. There were no fresh news developments of note, and trade was pretty thin with parts of Europe out for the Ascension Day holiday. On thread in market talk is that the market may have now discounted to a satisfactory degree next week's expected ECB action, and another is that the USD is less well supported than of late following the sharp drop in U.S. Treasury yields yesterday. We'd like to see a break above yesterday's peak at 1.3638 and the 1.3650 level to affirm that this could be the case by breaking the recent series of lower lows. Either way, rebound potential should remain limited ahead of the ECB meeting.

    [USD, JPY]
    USD-JPY fell to a one-week low of 101.46, subsequently remaining heavy around the 101.50-55 area. A narrowing in the 10-year U.S. Treasury versus JGB yield spread, despite the JGB yield making a one-year low of 0.565% today, drove the move. BoJ-speak by Shirai was also upbeat, although he did say it will take longer than two years to achieve the 2% inflation target. 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 yet, 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 has been steady-to-firmer today, but sentiment has soured notably this week, with the pound having dropped to six-week lows versus the dollar and one-week lows against the euro. The Apr-15 low at 1.6659 provides the next natural target in Cable. The weakening in the currency has occurred concomitantly with a decline in the benchmark Gilt yield advantage, with the CBI distributive trades survey becoming the latest data pointing to a moderation in U.K. growth, backing up recent BoE-speak that has been aimed at cooling tightening expectations. Another thread in market talk is that Scotland's independence vote in September is starting to loom onto the radar screen as a possible hazard. We recommend running with the prevailing bearish sterling view for now, but don't see this as the nascent stages of a major trend change.

    [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 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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