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By XE Market Analysis August 1, 2013 11:13 am
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    XE Market Analysis: Asia - Aug 01, 2013

    The dollar was supported overall as market participants digested more U.S. data strength in light of Wednesday's Fed policy statement. On balance, the market judged that Fed policy tapering was still on for September if data continues to improve. EUR traded under 1.3200 for the first time in a week as ECB maintained a dovish policy stance after it left policy unchanged as expected. This followed the BoE's steady policy stance, which briefly supported GBP, though it did not release a statement and is expected to reveal more details on formal policy guidance at next week's quarterly Inflation Report. Elsewhere, fund bids lifted USD-JPY through 99.00 and USD-CAD headed back above 1.0300 on general dollar strength.

    [EUR, USD]
    EUR-USD looks limited on the topside after it traded under 1.3200 for the first time in a week amid a mixture of U.S. data strength and ECB's dovish policy rhetoric. Draghi maintained that ECB expects key interest rates to remain at present or lower levels for an extended period of time, which should support the recovery. He said the forward guidance on policy was based on a subdued inflation outlook. The risks to growth remain on the downside and one worrying factor has been very poor credit growth. Draghi said this reflected higher credit risk and balance sheet adjustment and also the stage of the business cycle. Draghi also talked down money market rates, stressing that the recent rise was unwarranted. The EUR may see meet increased selling pressure on upticks based on the perceived risk of Fed taper, while the ECB is still a long way from exiting policy. Very large offers at 1.3300 were re-established in Asia.

    [USD, JPY]
    USD-JPY cleared offers at 99.00 and extended through 99.30 as firmer global equity markets and dollar support guided the pair higher. There was a marked pick up in Japanese real money flows related to new monthly investment flows. The leverage community was also active as 98.00 broke overnight and as the subsequent push through 98.50-60 worked off the bearish bias on the daily chart. There was a muted reaction to the latest report from a N.Y. based think tank that tipped steady policy at the BoJ meeting next week. It said the BoJ will await the outcome on post-election economic policy talks before committing on policy. The talks will include the sales tax hike and could also have a bearing on debt markets.

    [GBP, USD]
    GBP jumped after the BoE left policy unchanged as expected. The BoE did not release a statement, but are expected to provide more details on formal policy guidance when the quarterly Inflation Report is released on August 7. The BoE are widely expected to maintain a steady policy hand for the foreseeable future as U.K. economic data points to sustained economic recovery. Cable rallied out of 1.5160 to 1.5240 on a kneejerk reaction, which was a symptom of market positioning as sterling had underperformed due to the BoE policy stance since Monday. After the ECB's rate announcement and press conference Cable headed back below 1.5200.

    [USD, CHF]
    USD-CHF extended the intra-day rally towards 0.9350 as EUR-USD losses guided action over the ECB press conference and U.S. data strength revived the dollar bid. USD-CHF could break the recent bear trend if it closes above 0.9335 and extends to 0.9400 ahead of the weekend. Tomorrow's NFP data is likely to set the tone in this respect. ADP jobs, weekly jobless claims data and a strong employment index in the U.S. ISM reading points to risk of a firm NFP print.

    [USD, CAD]
    USD-CAD pressed higher on broad dollar gains. USD-CAD movement was choppy early on close to 1.0300 and then picked up as ECB policy rhetoric weighed on the EUR-USD and U.S. data revived the dollar bid. USD-CAD is still meeting offers ahead of 1.0335-40, which was the top of the range on Wednesday. However, the daily chart is looking supportive. USD-CAD has not sustained a break of 1.0250 over the last week or so despite good periods of selling and today's move back to 1.0330 could bode well for longs. A close above 1.0300 would support this view.

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