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By XE Market Analysis July 17, 2013 2:32 pm
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    XE Market Analysis: Asia - Jul 17, 2013

    The FX market was choppy in N.Y. on Wednesday, with the dollar initially trading lower on the back of a dovish leaning Bernanke, and soft housing starts, before recovering. The dollar moved higher as Bernanke began his Q&A. Bernanke said markets were beginning to understand the Fed's thinking, which many have been interpreted as a suggestion that policy tapering is an inevitable consequence of an improving U.S. economy. This should be more favorable for the dollar and yields arguably, but Bernanke did not explicitly pinned down a time-line, resulting in the greenback fading once again in light afternoon trade. EUR fell to 1.3090 from the 1.3140 area, but is steadying, while USD-JPY moved into the 100.00 area. Overall, recent dollar ranges held up.

    [EUR, USD]
    The dollar slipped following initial dovish sounding Bernankespeak, and the weak housing starts print, taking EUR-USD to 1.3175 from 1.3130, and USD-JPY down to 99.40 from 99.80. The EUR-USD later moved back toward session highs versus the euro peaking at 1.3160, as the market gave Bernanke's testimony a dovish stamp overall. The euro held up well under 1.3100 in morning trade, where sovereign buyers were reported. To the upside, 1.3180 offers are noted, while stops are said to be in place over 1.3200.

    [USD, JPY]
    USD-JPY chopped around inside of 99.00-100.00 through the session, moving to the bottom of its range after soft housing data, and a dovish leaning Bernanke. The pairing perked back up to 99.95 highs later, before settling in near 99.50. There was fresh official rhetoric from Japanese officials overnight. Deputy finance minister Nishimura said he expects the BoJ to keep easing to reach the 2% CPI target as soon as possible, but maintained that FX levels are not a target of Japan's policies. These comments come ahead of the G20 meeting later this week. On JPY and CNY policies, Bernanke recognized that FX policies do affect competition. He suggested China is manipulating its exchange rate to help boost exports. That's different from Japan which is trying measures to boost the economy and get out of a deflationary environment, where the by-product is a weaker yen. G7 members have concluded that using domestic policy tools for domestic purposes is allowable.

    [GBP, USD]
    GBP surged on BoE minutes and U.K. labour market data. The MPC voted unanimously to keep both the bank rate and the current QE level unchanged. Fisher and Miles changed their vote on the need for bond purchases and Carney voted for unchanged policy. The MPC will discuss alternatives to QE in the coming month, adding that the task was to ensure stimulus and not to withdraw prematurely. The BoE said the guidance in the July statement was intended to ensure there was no premature tightening. It said the increase in market rates prior to the last meeting was unwelcome tightening. Cable jumped from 1.5120 to 1.5245, while EUR-GBP fell back from over 0.8700 to 0.8635. In N.Y., cable zigged abd zagged with the broader dollar movement. peaking at 1.5267, and basing at 1.5150.

    [USD, CHF]
    CHF maintained a bid tone as markets remained defensive ahead of Bernanke. USD-CHF headed back below 0.9400, which forced a EUR-CHF move through support at 1.2350 and it edged out lows just under 1.2340. The move lower in USD-CHF was function of repositioning by dollar longs, though activity was much lower than Tuesday. U.S. trade saw USD-CHF move under 0.9360, before recovering back over 0.9440, then settling in near 0.9400. The cross touched 1.2325 lows, then rebounded to 1.2365 on dollar strength.

    [USD, CAD]
    USD-CAD dipped with the greenback in general after soft U.S. housing data, and a dovish Bernanke, though regained some ground into the 10:00 EDT BoC policy announcement. The pairing fell to 1.0360 from 1.0400, though quickly bounced back to 1.0390. USD-CAD spiked higher after the BoC announcement, trading over 1.0435 from 1.0400. Gains were short lived however, as focus turned back to Bernanke testimony. The Fed chief rang a more dovish tone in his prepared remarks relative to market positions. Later however, as the market give Bernanke's testimony a dovish stamp overall, the USD dipped back toward 1.0400. The Bank of Canada held rates steady at 1.00% but tweaked its mild tightening bias. The Bank now says "Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target."

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