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By XE Market Analysis May 30, 2014 6:48 am
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    XE Market Analysis: North America - May 30, 2014

    The dollar traded mostly softer during the Asian and European AM sessions with yesterday's U.S. GDP miss and lower Treasury yields having taken the shine out of the greenback. The euro also exhibited signs of being less sensitive to bearish leads. EUR-USD established a foothold above 1.3600 after briefly dipping just below here in Asia and again in early London trade, even though the market had excuse to take the euro lower on an unexpected drop in German retail sales, and sub-forecast Spanish HICP and Italian PPI numbers. USD-JPY opened in Tokyo near 101.75 and ebbed to a low of 101.49 following a batch of Japanese data releases, headlined by the expected spike in April CPI to 3.4% y/y from 1.6% (a consequence of April's sales tax rise). The pair steadied around 101.60-70. AUD-USD corrected back toward 0.9300 after clocking a 10-day peak at 0.9329 in Sydney. Australia's ASX stock index underperformed in Asia, with a 0.5% loss, as industrial metal producers came under pressure on the back of weakness in metal prices.

    [EUR, USD]
    EUR-USD seems to have steadied around the 1.36 mark after edging out a fresh three-month low of 1.3586 yesterday. Price action remains distinctly bearish with a new lower low having been made on each of the last four trading days, and with recoveries remaining pretty muted, with yesterday's rebound, for instance, stalling shy of the previous day's peak. We are anticipating EUR-USD to fall to sub-1.3500 levels over the coming week, a week which will bring May Eurozone CPI data, the June ECB policy meeting (and expecting easing), and U.S. May payrolls report. Resistance is marked by Wednesday's high at 1.3638 and 1.3650.

    [USD, JPY]
    The yen firmed moderately following Japanese data, which was headlined by April inflation figures that produced the expected jump in CPI to 3.4% y/y from 1.6% in March. The spike was caused by the three percentage point rise in the sales tax in April, which will have a base effect on y/y data through to March next year. Other data out of Japan included as-expected employment, spending and industrial production reports. USD-JPY opened in Tokyo near 101.75 and ebbed to a low of 101.49 following the data releases, subsequently steadying around 101.55-60. The IMF stated that there is no need for further BOJ easing, which pretty much matches the market view now. 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 found its feet, with Cable lifting to around 1.6750 and EUR-GBP ebbing below yesterday's 0.8128 low. Helping underpin was BoE MPC member Weale's remarks of Wednesday that gradual interest rates rises would have to start sooner rather than later if a sudden, sharp rise in rates were to be avoided. By "sooner" it was clear he didn't mean by year-end, and prevailing market expectations for the first hike March 2015 should remain intact. He also said that tightening would be something in the order of 1% a year. We think in the bigger picture Cable is entering a period of broad stability.

    [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 speculative franc buying. 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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