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By XE Market Analysis October 9, 2014 6:06 am
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    XE Market Analysis: North America - Oct 09, 2014

    The dollar extended losses in Asia and Europe as markets continued to adjust to the dovish-leaning FOMC minutes, which also earmarked dollar strength as a specific concern for some Fed policymakers. EUR-USD lifted to 1.2791, taking out the 20-day moving average on route, marking this as the first day the euro has traded north of this average since Jul-15. The up-move in EUR-USD has been concomitant with a decline in the Bund versus U.S. T-note yield differential, which has risen to -142.1 bp, down from levels below -150bp. We see scope for EUR-USD to recover to the mid-128s, though in the bigger picture the growth divergence between the Eurozone and U.S. should curtail EUR-USD's upside. USD-JPY, meanwhile, has drifted to new three-week lows under 107.65. Mid-September lows at 106.82-107.09 looked likely to be revisited.

    [EUR, USD]
    EUR-USD extended to a two-week high at 1.2791 on general dollar weakness following the dovish FOMC minutes, which showed some members seeing "significant underutilization" of labour resources and concerns about a firmer currency. However, we still see limited potential for the upside in EUR-USD and caution against getting drawn into a 'suckers' rally' in the euro . The fundamental picture still has sufficient divergence between the paths of the U.S. and Eurozone economies to anticipate that the overall bear trend will remain in force. Resistance is marked at 1.2800-1.2816.

    [USD, JPY]
    USD-JPY rebounded from a three-week low at 107.60, though this stalled just shy of 108.00. Mid-September lows at 106.82-107.09 look quite likely to be revisited, though we don't advise getting too bearish on the dollar as this phase may well turn out to be a 'suckers' move.' In the bigger picture, yield and growth differentials between the U.S. and Japan should keep the U.S. currency underpinned against the yen. We see scope for an eventual move to 115.00. BoJ boss Kuroda said last week that the central bank is aiming to achieve the 2% inflation as "soon as possible," and that a weak currency won't be problematic so long as it reflects fundamentals.

    [GBP, USD]
    Cable has followed EUR-USD higher amid a broad correction in the dollar, but we don't expect much more upside progress for sterling U.K. data today showed fresh signs of slowing recovery pace with the September RICS house price balance came in at +30%, down on the Reuters median for 36%, while the BCC's quarterly economic survey showed the slowest export growth in nearly two years. This follows last week's U.K. September PMI release, which showed the composite reading to have fallen to a six-month low. We expect incoming data to show the impact of the stagnating Eurozone economy, which should support BoE MPC member Broadbent's view that the economy is "not ready" for a rate hike. Resistance is marked at 1.6235-40 (which encompasses the 20-day moving average).

    [USD, CHF]
    EUR-CHF is back above 1.2100 after SNB's Jorden said last week that there are additional measures that the central bank could use to enforce the EUR-CHF limit peg at 1.2000. This has put the major-trend low of 1.2044 out of the picture for now. The SNB will find defending the 1.2000 cap a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance.

    [USD, CAD]
    We remain bullish on USD-CAD and favour buying into recent dips. Last Friday's high was eight pips shy of the March major-trend peak at 1.1278, which we have been targeting. Support is marked at 1.1071 (Oct-2 low) and 1.1000. Major support is now some way off, at 1.0920-26.

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