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By XE Market Analysis November 21, 2014 7:06 am
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    XE Market Analysis: North America - Nov 21, 2014

    Two key develops drove the EUR lower and sent the AUD and other commodity-correlating commodity bloc currencies higher. One was a shock interest rate cut by the PBoC, which drove stock and commodity prices higher and saw AUD-USD spike nearly 100 pips to a three-day high at 0.8722. USD-CAD concurrently dipped to a three-day low at 1.1277. The other market-moving development was provided by ECB boss Draghi, who said, "indicators have been declining to levels that I would deem excessively low," and that, "if on its current trajectory our policy is not effective enough" to achieve price stability, "we would step up the pressure and broaden even more the channels through which we intervene." That sent EUR-USD tumbling to a one-week low at 1.2424, thereafter seeing little bounce. USD-JPY, meanwhile, was largely unaffected by the China rate move, and held in a choppy range in the mid-to-upper 117s. The pair had dropped from levels above 118 during the Tokyo session after Japan's Finance Minister Aso said that yen weakening over the past week had been "too rapid."

    [EUR, USD]
    The euro dropped quite sharply on dovish remarks by ECB's Draghi, reaching 1.2424 against the dollar after diving from levels near 1.2550. Draghi said "indicators have been declining to levels that I would deem excessively low," and that, "if on its current trajectory our policy is not effective enough" to achieve price stability, "we would step up the pressure and broaden even more the channels through which we intervene." The dollar's yield advantage against the euro has pushed back above 155 bp at the 10-year bond maturity level, about 4 bp up on levels seen yesterday. EUR-USD's dive has taken the pair to one-week lows, swinging the Nov-14 low at 1.2398 back into scope. This level and 1.2400 mark support. Below here and we have the Nov-6 low at 1.2358, which is the lowest level traded since August 2012. We look for an eventual move on the July 2012 low at 1.2042 due to diverging Eurozone and U.S. economic growth.

    [USD, JPY]
    USD-JPY has seen volatile trade that left a high at 118.36 and a low at 117.35 before settling around 117.80 and then recovering the 118 handle. Finance Minister Aso said today that yen weakening over the past week had been "too rapid,," which prompted a round of yet buying. Aso said he was against "rapid FX moves" whether up or down, which are unwelcome, as forex rates should be determined by the market. This combined with lots of talk in the interbank that USD-JPY is due a correction after recent outsized gains. PM Abe's rush for a new mandate for Abenomics (elections to be held Dec-14) has been driving the latest drop in the yen. We expect divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY, anticipating move on 120.00.

    [GBP, USD]
    We remain bearish of sterling in the case against the dollar. We see that the U.K.'s recovery pace will continue to be eroded by economic stagnation across the Channel and slowing in some key emerging economies. Resistance is at 1.5687-1.5700, support at 1.5630 and 1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF continues to ply a narrow path marginall above 1.2010 and the SNB's no-go limit of 1.2000. There are market rumours that the SNB has effectively set up a buffer zone by lining up bids from 1.2010 to 1.2000, and Reuters has reported that a sizable bid has been conspicuously placed on EBS at 1.2006. SNB's Zurbruegg pledged that that 1.2000 franc cap will be defended "with utmost determination" as the bank is prepared to buy an unlimited amount of FX and take further measures immediately if needed. News earlier in the week that a poll found that the "Save our Swiss Gold" initiative had only 38% support (referendum will take place on Nov-30) had helped give EUR-CHF a lift as a 'yes' outcome would, by the SNB's argument, jeopardise the defence of the 1.2000 cap. The cross only managed to lift to 1.2026 before sinking back to the SNB's apparent line-in-the-sand at 1.2010, however.

    [USD, CAD]
    USD-CAD dipped to a three-day low at 1.1277 as the Loonie rallied following the unexpected PBoC rate cut. We continue to expect a challenge on the major-trend high at 1.1467 on the back of U.S. dollar strength. The likelihood for continued soft oil prices is also a relative downer for the Canadian dollar. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1260-65-1.1250.

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