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By XE Market Analysis November 10, 2014 7:20 am
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    XE Market Analysis: North America - Nov 10, 2014

    The dollar gave back some of the post-U.S. jobs gain that was seen Friday. The move has been concomitant with a decline in the greenback's yield advantage, which at the 10-year bond maturity level has dipped to 148 bp against the euro, down from 150 bp-plus levels seen ahead of the payrolls release on Friday, and to 185 bp versus the yen, down from around 190 bp. EUR-USD rose to a peak of 1.2509. USD-JPY dipped below 114.00, trading on a 113 handle for the fist time since last Wednesday, making a low at 113.86. AUD-USD lifted to its best level since last Wednesday in making 0.8682. Data were a mixed bad. A worse than expected contraction in Italian industrial production cast a shadow over Q3 GDP releases later in the week. China saw October CPI meet expectations at 1.6% y/y, while its October trade surplus beat forecasts thanks to a 11.6% jump in exports. Stocks in Europe and Asia were mostly firmer, Japan's Nikkei being a notable exception.

    [EUR, USD]
    EUR-USD lifted above 1.2500 amid a broader dollar correction. The high at the time writing is 1.2509, which is just over 10 pips shy of levels seen ahead of the U.S. jobs report on Friday. The move has been concomitant with a decline in the greenback's yield advantage, which at the 10-year bond maturity level has dipped to 148 bp against the euro, down from 150 bp-plus levels seen ahead of the payrolls release. A worse than expected contraction in Italian industrial production cast a shadow over Q3 GDP releases later in the week, though the latest Eurozone Sentix index found that its recessionary signal has become weaker this month, with expectations jumping to -2 from -7.3. We remain big picture bears on the basis of our anticipation for higher growth in the U.S. relative to the Eurozone over the next six months, looking for an eventual move on the Oct 2012 low at 1.2040. Nearer-term trend resistance is marked at 1.2533-50.

    [USD, JPY]
    USD-JPY dipped below 114.00 to trade on a 113 handle for the fist time since last Wednesday, making a low at 113.86. The move reflected a broader dollar correction. Our long-standing target at 115.00 was finally met last week, though we still think divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY. Nearer term, however, we could be in for some more losses. Support is marked at 113.41 (Nov-5 low) and 113.00.

    [GBP, USD]
    Cable has recovered the 1.59 handle after posting an 13-month low at 1.5790 on Friday, which took out our 1.5854 target (which was the November 2013 low). We anticipate more of the same as we see U.K.'s recovery pace will continue to ebb over the coming quarter due to the impact of economic stagnation across the Channel and de-acceleration in some key emerging markets. This will likely contrast to the situation Stateside. Resistance is at 1.5945-50, 1.6000 and 1.6022-28 (former highs), support at 1.5887-90 and 1.5824-25.

    [USD, CHF]
    EUR-CHF remains under pressure, making 1.2022, which is the lowest level seen since September 2012. The risk of SNB intervention is high given the proximity of the 1.2000 limit peg. There has been market talk of SNB bids, though no confirmation of actual intervention. The central bank hasn't officially intervened since 2012. Euro weakness and bouts of risk aversion in global markets have been weighing on the cross recently, while the approaching Gold referendum in Switzerland on Nov-30 is seen as a potentially bearish development for EUR-CHF (should a 'yes' outcome force the SNB, as it would be aginast its wishes, to raise the percentage of gold reserves to 20% from 8% presently). Aside from the gold issue, defending the cap will be a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance. The central bank can be expected to remain resolute, however, having hinted at the option of negative interest rates if need be. Swiss policymakers' principle concern is the persisting threat of deflation, which runaway franc strength would contribute to.

    [USD, CAD]
    USD-CAD has corrected to the 1.1300 area after making a new major-trend high at 1.1467 last Wednesday. Resistance is marked at 1.1370-71 and 1.1480-1.1500, support is at 1.1300. We still expect further greenback gains as the risk of continued soft oil prices will be a relative downer for the Canadian dollar.

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