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By XE Market Analysis February 4, 2014 2:46 pm
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    XE Market Analysis: Asia - Feb 04, 2014

    Markets calmed some on Tuesday, taking Wall Street higher, though nowhere near making up for Monday's losses. The U.S. calendar was light, with just December factory data on tap, which was weaker than expected. The dollar managed to rally modestly however, as EUR-USD dipped briefly under 1.3500, and USD-JPY moved over 101.50, up from overnight lows near 100.75. Upcoming risk events may keep the FX market hemmed in for the time being, with ADP jobs data due Wednesday, the ECB meeting on Thursday, and the official U.S. January employment report on Friday. Traders will continue to eye EM conditions, but barring fresh moves there, the dollar may have found a floor for now.

    [EUR, USD]
    EUR-USD found support just above London's 1.3494 lows, after peaking over 1.3530 into the N.Y. open. We expect range trade to continue into the ECB meeting on Thursday, where market volatility and EM concerns will add to the arguments of the doves at this week's council meeting, making further ECB action more likely. The euro bounced from its brief foray under 1.3500, though leveled out around 1.3520 in light afternoon dealings.

    [USD, JPY]
    USD-JPY has climbed back over 101.60, after touching 100.75 in early London trade. The market was missing liquidity due to Chinese new year holidays, which may have exacerbated the overnight drop. Risk levels have steadied, which has supported the pairing this morning, though until the market gets a clearer picture of EM trends, volatility is likely to remain. Coming risk events (ADT on Wednesday, ECB on Thursday) may result in tighter ranges for the time being.

    [GBP, USD]
    Sterling recovered in London on the strong construction PMI data, recouping some of its earlier losses. Cable popped about 40 points to a peak of 1.6342 while EUR-GBP shed nearly 30 pips in making a low of 0.8266. The market will likely settle down into tomorrow's services PMI. Resistance is marked at 1.6400-1.6440, which encompasses a cluster of former daily highs and lows, and the 50-day moving average. A generally firmer USD however, saw cable move back under 1.6400 into the London close, where it found support.

    [USD, CHF]
    EUR-CHF recovered above 1.2200 after logging a fresh six-week low of 1.2184 earlier. We expect only limit upside potential as the CHF-supportive risk-off theme is likely to persist for the time being, though this Friday's U.S. payrolls report could be a game changer. The Dec-17 cycle low of 1.2167 remains in scope. We don't advise speculative accounts to hold long CHF exposures below 1.2100, should such levels be seen, given the threat of SNB intervention ahead of its 1.2000 limit peg. A decent U.S. jobs report would likely help the cross build a base around 1.2200-1.2250.

    [USD, CAD]
    USD-CAD eased back from London highs, trading into 1.1070 early in the session, after peaking earlier at 1.1123. The USD had been under fairly broad pressure this week so far, giving the CAD a leg-up. Initial support is seen at 1.1050, where corporate bidding interest has been reported. To the upside, resistance comes in at 1.1120, with stops building at 1.1140. The pairing dipped to 1.1052 into the London close, before steadying over 1.1060.

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