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By XE Market Analysis December 27, 2013 7:51 am
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    XE Market Analysis: North America - Dec 27, 2013

    EUR-USD spiked sharply from the low 1.37s to 15-month highs near 1.3850, having breached the December high of 1.3812 on route. There didn't appear any specific news or data developments behind the move other than reports of an Asian central bank on the bid in EUR-USD, which has had a magnified impact due to the year-end market conditions. The triggering of option related stop orders also appeared to play a role. The move marks a sharp turnaround following the Dec-20 low of 1.3625 that had been seen following the Fed's tapering announcement. USD-JPY briefly dipped under 104.70 after logging a new five-year peak during the Tokyo session, at 105.03, and has subsequently returned to levels around 104.90 at the time of writing. EUR-JPY and other yen crosses have also risen sharply, showing a similar price action to the respective dollar pairings as the U.S. and Japanese currencies vie to be the weakest currency.

    [EUR, USD]
    EUR-USD spiked sharply from the low 1.37s to 15-month highs near 1.3850, having breached the December high of 1.3812 on route. There didn't appear any specific news or data developments behind the move other than reports of an Asian central bank on the bid in EUR-USD, which has had a magnified impact due to the year-end market conditions. The triggering of option related stop orders also appeared to play a role. The move marks a sharp turnaround following the Dec-20 low of 1.3625 that had been seen following the Fed's tapering announcement. Technically, the moved would appear to be a bullish developed, but we would advise caution with regard to a 'validity' of the move given the low volumes.

    [USD, JPY]
    USD-JPY briefly dipped under 104.70 after logging a new five-year peak during the Tokyo session, at 105.03, and has subsequently returned to levels around 104.90 at the time of writing. EUR-JPY and other yen crosses have also risen sharply, showing a similar price action to the respective dollar pairings as the U.S. and Japanese currencies vie to be the weakest currency. We expect the yen to remain on a weakening path during the early part of 2014. Japanese policymakers are pursuing a weak currency and there will be market concerns about the impact of the planned 8% rise in sales tax next April, to which the BoJ is expected to offset this by making further liquidity provisions. At its meeting last week, the central bank maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen.

    [GBP, USD]
    We remain sterling bullish. S&P last week affirmed the U.K. 's triple-A rating but kept a negative outlook, saying that the country would be vulnerable to a downgrade if growth was not sustained (the main risk to which stems from Eurozone). Cable has been in a bullish trend for six months, reflecting a trade-weighted appreciation of the currency over this time as U.K. recovery took hold. We anticipate more of the same during the early part of 2014. Forward looking survey evidence, such as from PMI order data, and the CBI industrial trends survey, strong mortgage lending figures (which signal house price potential two to four months down the track), support this view.

    [USD, CHF]
    USD-CHF dove to 0.8800 amid broad, thin market dollar weakness. EUR-CHF dipped modestly, but has remained comfortably above 1.2200. EUR-CHF breached above 1.2200 last week, recovering from pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. The gain in the cross had reflected an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commencement QE tapering. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is at 1.2220 and 1.2200.

    [USD, CAD]
    USD-CAD has settled around 1.0600-50 after some choppy price action after making a major-trend peak of 1.0737 last week. The pair had since dipped to sub-1.06 levels on Monday's forecast-beating GDP data out of Canada, making a low of 1.0581 before finding a footing. The pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0420). This conviction may have been strengthened by the repeated rejections from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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