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By XE Market Analysis October 10, 2014 6:08 am
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    XE Market Analysis: North America - Oct 10, 2014

    The dollar reaming firm on Friday in Asia and Europe. A dive in the STOXX 600 equity index, down 1.4% at two-month lows (as of the time of writing), and a French industrial production miss had been catalysts for EUR-USD selling. The pair dove to a two-day low of 1.2650 -- nearly 150 pips down on Thursday's peak and a few pips below the levels prevailing before the release of the FOMC minutes on Wednesday. USD-JPY, meanwhile, retreated back below 108.00 after running to a peak at 108.15. The BoJ's minutes to the September policy meeting found most members remaining committed to QE to achieve the 2% target. Although the Fed is not exactly on a fast track to tightening, the dollar seems to remain the best of a bad choice.

    [EUR, USD]
    EUR-USD dove to a two-day low of 1.2650 -- nearly 150 pips down on Thursday's peak and a few pips below the levels prevailing before the release of the FOMC minutes on Wednesday, which had prompted a dollar sell-off. A dive in the STOXX 600 equity index, down 1.4% at two-month lows (as of the time of writing), and a French industrial production miss had been catalysts for EUR-USD selling. Despite the dovish-leaning FOMC minutes this week, recent data shows that the fundamental picture is still one of sufficiently divergent paths between the U.S. and Eurozone economies to maintain the overall EUR-USD bear trend. Support comes in at 1.2650 (intraday low), and resistance at 1.2716-20, 1.2750 (20-day moving average) and 1.2800-1.2816.

    [USD, JPY]
    USD-JPY has held in about a 50 pip range in the upper 107s and lower 108s, remaining within Thursday's trading bounds. The BoJ's minutes to the September policy meeting found most members remaining committed to QE to achieve the 2% target. CPI excluding the impact of this April's sales tax hike is presently running at 1.1%. We think yield and growth differentials between the U.S. and Japan should keep the dollar underpinned against the yen. We see scope for an eventual move to 115.00. Support is marked at 107.50-55, while we look at 106.80-107.09 as a key support area. 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]
    We expect Cable to head lower, back to the 1.6000 area. U.K. data this week 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 will continue to show the impact of the stagnating Eurozone economy, which should support BoE MPC member Broadbent's remarks of last week, that the economy is "not ready" for a rate hike. Resistance is marked at 1.6135, ahead of 1.6200 and 1.6220-30 (which encompasses the 20-day moving average).

    [USD, CHF]
    EUR-CHF has settled back to the 1.2100 area, reversing gains seen 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. The major-trend low of 1.2044 has edged back onto the radar screen. 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. 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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