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By XE Market Analysis November 15, 2013 7:11 am
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    XE Market Analysis: North America - Nov 15, 2013

    A risk-on theme prevailed, which saw the yen underperform and the Australian dollar and other growth correlating, high-beta currency types outperform. EUR-USD was net steady during the European AM session, holding moderately firmer levels from yesterday's New York closing levels. Yesterday's fresh dose of dovish-talk from the Fed chairperson-elect Yellen was the prime factor, which kept equities on the simmer. Contributing to this backdrop were media reports that Chinese policymakers will be detailing reforms over the next seven to 10 days, offsetting disappointment earlier this week concerning premature expectations of this following a plenum of government members. Confirmation of Oct HICP at 0.7% y/y had little impact, while Eurozone policymaker struggles to find a compromise on a Single Resolution Mechanism may have curtailed any post-Yellen bullish EUR aspirations.

    [EUR, USD]
    EUR-USD , at 1.3448, was showing a modest gain, just ahead of the New York open. Trendline support is marked at 1.3445. The 200-day moving average comes in below here, at 1.3440, and there is market talk of stops below here. Confirmation of Oct HICP at 0.7% y/y had little impact, while Eurozone policymaker struggles to find a compromise on a Single Resolution Mechanism may have curtailed any post-Yellen bullish EUR aspirations.

    [USD, JPY]
    USD-JPY punched through its Sep-11 peak at 100.30 earlier and extended to 100.44, which is a new four-month high. The Jul-22 at 100.62 is the next target. EUR-JPY logged a two-week peak just above 135.00, since settling to toward 134.80. Late October forays above 135.00 had proved short-lived, making this level a psychological resistance for market participants, and the EUR-JPY cross is looking stretched after an abnormally strong rally from the sub-132.0 levels of a week ago, and this raises the odds for a correction phase now. Initial support is marked out 135.50 while the one-week trend support line is some way off at 134.10. USD-JPY may also find it hard to sustain levels above 100.00 over the nearer-term, though assuming the risk-on theme persists we would expect further upside advances. The backdrop to the prevailing weakness of the yen is the Yell-inspired revival in risk appetite in global financial markets, which the Japanese currency can often be relied upon to correlate negatively with.

    [GBP, USD]
    GBP has remained well supported following the strong labour market data and upwardly revised BoE forecasts of U.K. GDP, which were announced earlier in the week. Markets are bringing forward the expectation for the eventual raising of the repo rate from its prevailing record low of 0.5% (in place since March 2009). We expect this expectation will settle around Q1 2015, having been Q2-Q3 of the same year at the start of this week. We expect incoming survey data for November will continue to affirm a picture of economic revival in the U.K. Cable's long-term trend high of 1.6260 looks a good medium-target. Nearer term, trend support comes in at 1.6050-55, ahead of the 1.6000 level. Resistance can be expected into 1.6100-1.6110, which encompasses the high seen on Thursday. Next domestic focus comes with the CBI industrial trends survey, next Tuesday, and the release of the BoE MPC minutes to the early November policy meeting, due Wednesday. We expect both to be net-supportive for sterling.

    [USD, CHF]
    The CHF has been weakening versus both the EUR and USD, as should be expected during periods of risk-on, the current bout of which has been fuelled by dovish remarks by U.S. Fed Chairperson-elect, Yellen. This will be good news for Swiss policymakers given the renewed drop in CPI and PPI numbers into negative territory, developments which in themselves will maintain the SNB's commitment for ultra-loose monetary policy and its currency cap. EUR-CHF resistance is marked at 1.2360 and 1.2375 (the Oct-15 high). Trend support, which has been establishing during the recovery from the late-September lows, comes in at 1.2325. We'll need to seen risk appetite hold up if EUR-CHF is to recovery the 1.2400 handle. Bullish prospects for USD-CHF seem good given the Fed's renewed commitment to dovish policy. We look for a recovery to the 0.9250 area.

    [USD, CAD]
    The USD-CAD path has been somewhat choppy in recent sessions, with three separate forays above 1.0500 over the last week having squashed upside impetus in market direction. The CAD is benefitting from the broader revival in risk appetite following the dovish remarks by U.S. Fed chairperson-elect Yellen. Directional risks now appear greater to the downside. The 1.0440 levels offers both a near-term target and support (marking Thursday's low), with 1.0400 looking a reasonable target. Resistance is marked at 1.4475. On the Canadian calendar today is manufacturing shipments, which has us projecting a rise of 0.7% in September (median +0.3%) after the 0.2% drop in August, which would provide further assurance that the Canadian economy is making headway. October existing home sales should also reveal sustained strength after rising 18.2% y/y in September.

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