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Wednesday 23 April 2014 21:11

XE Market Analysis: Asia - Mar 07, 2013

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The dollar gave back some of its gains on Thursday in N.Y., after the BoJ, ECB, and BoE, all left policy unchanged. While the non-moves were largely expected, the market took opportunity to book profits on USD longs. Some had been looking for the ECB to perhaps prepare the market for a rate cut, but when that didn't happen, the euro bounced. USD-JPY meanwhile, continued to firm, making trend highs over 95.00. The market now will go with the premise the BoJ will ease further at the next meeting, with the new governor is in place. Cable popped following the BoE lack of action, moving over 1.5080, before struggling, and returning under 1.5020. On the economic front, the January trade deficit was a bit wider than expected, while Q4 productivity was revised lower. Weekly jobless claims fell again, which supported equities into Friday's key February employment report.

EUR-USD moved from 1.3010 to 1.3080 during the ECB press conference. Draghi said weak inflation allows ECB policy to remain accommodative, which supports our view that the ECB for now is not preparing for further easing. Draghi acknowledged that inflation fell below 2% in February and that the economic weakness has extended into the first quarter, but added that the economy will gradually recover this year also supported by the ECB's accommodative policy. The pairing eventually traded on the 1.3100 handle, with reports of option backed selling over the figure. The risk backdrop remained fairly neutral, though with the ECB out of the way, there could be more room for a short squeeze higher. A break over 1.3120 should result in a test toward last Thursdays highs around 1.3160.

USD-JPY touched session highs near 95.10, new trend highs. Buyers stepped back in on the move above 94.77, which represented 33-month highs. Prospects for further BoJ measures at the Bank's next meeting may keep the uptrend intact, though for now, Japanese exporter offers may slow gains over 95.00. In addition, seasonal repatriation ahead of Japan's fiscal year end at the end of March may slow upside progress.The BoJ has ample reason to ease policy further, but held fire today ahead of the new central bank policy board takes place for the early April meeting. Governor Shirakawa will step down March 19. ADB Governor Kuroda, who is a strong advocate of aggressive easing, is on his way to being confirmed as the next BoJ Governor.

GBP rallied sharply following the BoE's decision to refrain from expanding its QE program. GBP-USD surged back above 1.5080 after making a fresh trend low of 1.4966 during Asian trade. The price action breaks the near-term trend and should set up a period of consolidation. There had been a degree of market speculation in favour of the MPC announcing another round of asset purchases. The stronger than expected February services PMI release went some way to cement our no-change view aftr the construction and manufacturing PMI shockers, which in any case can be partly explained by one-off factors. A report in the FT had apparently helped sterling's cause, according to a market source, as it argued that BoE Governor designate Carney will be given more powers at BoE. EUR-GBP hit 10-day highs ahead of the BoE announcement. For now, February's major-trend peak at 0.8764 looks out of reach.

EUR-CHF broke higher after a model fund fished for stops through 1.2300 on Wednesday. A series of resistance levels gave way and it extended through 1.2310. The next level of important resistance lies at 1.2345 and may cap in the near-term. With EUR-USD fairly static around 1.3000, USD-CHF has taken off from 0.9405 and pushed back over 0.9480, and through option barrier exposure at 0.9450. However, option defensive selling is expected to pick up due to outstanding 0.9500 barriers. USD-CHF eased back toward 0.9420 in N.Y. dealings, with the greenback overall paring gains.

USD-CAD tripped up stops on its move under 1.0300, on its way to lows of 1.0285 after the narrower Canadian trade deficit. Support is seen at 1.0270, representing North American low on Wednesday, with more stops noted under the level. The risk backdrop remained marginally positive for the CAD, and following the lack of action from the BoJ, ECB, and BoE, USD positive policy speculation has run its course for now. USD-CAD based at 1.0285 before briefly reclaiming the 1.0300 handle later in the session.

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