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By XE Market Analysis August 16, 2013 4:05 pm
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    XE Market Analysis: Asia - Aug 16, 2013

    The dollar tried to head lower again in early N.Y. trade on Friday, though eventually made up modest ground into the weekend. Relative to Thursday's volatile session, trade was quite light on Friday, with major dollar pairings remaining inside of recent trading bands. U.S. data was a bit softer than forecasts, with housing starts and Michigan sentiment both missing their marks. EUR-USD peaked near 1.3380 before slipping to 1.3312 lows, while USD-JPY touched 97.20 before rebounding to 97.78. Focus will remain on the Fed and the prospects for tapering next week, and generally, we see scope for dollar volatility for a while longer.

    [EUR, USD]
    EUR-USD initially rallied after softer housing and sentiment data, though turned lower and stayed softer in afternoon trade. With London gone for the weekend, things turned sideways through the afternoon. Equities remained flat-ish and Treauries rangebound. With EUR-USD in particular unable to hold higher levels after Thursday's short squeeze, it appears positioning may have lightened up enough for the dollar post further gains next week.

    [USD, JPY]
    USD-JPY short covering went through ahead of the London close and after very large option exposure came out of the market. Expiries in excess of $10 bln rolled off and had kept USD-JPY on the defensive for the last 24 hours so. After the brief dip into 97.25 over the U.S. data most of the flows have been from day traders covering positions or option names rebalancing books ahead of the weekend to take it back to 97.60.

    [GBP, USD]
    Cable edged back into range highs around 1.5650 over the course of the European morning. A triple AAA was noted on top and players have linked the flow to a large outstanding 1.5650 option expiry. Intra-day longs have used the opportunity to take profit and the pair is close to 1.5630. Offers are likely to be heavy from 1.5650 to 1.5700 due to outstanding barriers, though upside hedging has been prevalent this week. Of note, large 1.6000 front dated strikes changed hands in good size yesterday. However, there are doubts whether Cable can sustain a long-term move beyond the mid-June peak around 1.5750 with Fed taper on the horizon.

    [USD, CHF]
    EUR-CHF met selling pressure on upticks. Failure to sustain the move through 1.2425 for two consecutive sessions flagged a potential turning point for the cross, while the subsequent downturn in stocks also triggered an unwinding of speculative positions. EUR-CHF traded back towards 1.2330 in N.Y. trade on Friday. Buyers are tipped into 1.2330, while offers lie ahead of 1.2400 now.

    [USD, CAD]
    USD-CAD managed 1.0294 lows overnight, continuing to find good buying interest under the figure. The pairing bounced modestly to 1.0330 levels in London, and early drivers now will be U.S. housing and Canadian manufacturing data at 8:30 EDT. Support is seen down to 1.0275, with resistance up at 1.0370. USD-CAD rebounded toward 1.0335 from 1.0320 after the weaker Canadian manufacturing shipments headline, though given the extent of the miss, FX reaction was quite muted. Pre-weekend range trade ensued, with 1.0300-50 holding up.

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