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By XE Market Analysis July 27, 2016 3:24 pm
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    XE Market Analysis: Asia - Jul 27, 2016

    FX trade was subdued ahead of the FOMC announcement, with major dollar pairings idling inside of relatively narrow ranges. The dollar rallied broadly, if briefly after the Fed, where the statement gave markets a more upbeat take on the labor market and economic conditions. There was one dissenter, George, who preferred to raise rates now. EUR-USD fell from 1.1000 to 1.0962, still inside of its recent ranges, while USD-JPY spiked up to 106.04 from near 105.65. USD-CAD printed fresh four-month highs of 1.3254 from 1.3210, while cable dropped to 1.3105 from 1.3140. The greenback quickly reverted back to pre-FOMC levels after a moment or two of excitement. While the Fed's statement was perhaps a little more upbeat, the rate hike path looking forward does not appear to have changed much. EUR-USD moved to new session highs of 1.1012, as USD-JPY traded into 105.65.

    [EUR, USD]
    EUR-USD turned sideways into the FOMC, did the other dollar pairings, after ranging between 1.0984 and 1.1007 through the morning. Subsequent FX moves came down to the tone of the Fed's statement, which sounded initially hawkish, resulting in a slide to 1.0961 from the 1.1000 level. The failure to break under the euro's recent 1.0953 bottom however, and little change in the market's thinking on when the next rate hike will be, resulted in a quick round of short covering, taking the pairing to session highs of 1.1012.

    [USD, JPY]
    USD-JPY had its feathers ruffled a bit ahead of the FOMC, dropping to 105.57 lows from earlier highs of 105.88. The oil market sell-off, reports of an explosion in Germany, and of an earthquake in Japan likely created the case of nerves for USD-JPY longs. The pairing spiked up to 106.04 after the Fed announcement, though quickly reverted back into 105.55 lows, as the dollar overall stumbled. USD-JPY downside is expected to be limited into Friday's BoJ announcement, where expectations are for the Bank to take rates further into negative territory, and to ramp up its QE program.

    [GBP, USD]
    Sterling traded with relative stability, has it has been for over a week now, but still about 12% down on levels prevailing against the Brexit vote. The FTSE 250 has today, in contrast, recovered all of the losses seen in the wake of the vote to exit the EU. This reflects the passing of the initial shock and a well-performing financial system, a quick reconstruction of the governing Tory Party, and expectations for big stimulus, both from the BoE, next week, and via a looser fiscal policy.

    [USD, CHF]
    EUR-CHF rallied to two-week highs of 1.0937. SNB President Jorden said earlier in the week that the central bank is "monitoring" Brexit fallout "very carefully," adding that the franc remains "significantly overvalued," which is a "big concern for us." He said that "we still can go lower if necessary" with regard to the prevailing deposit rate of -0.75%.

    [USD, CAD]
    USD-CAD pulled back to session lows of 1.3158, after failing to make a new trend high overnight. WTI crude's early return above $43/bbl prompted some position paring, with CAD shorts booking profits following the steep run-up from 1.2850 to over 1.3240 over the past two-weeks. Later, USD-CAD spiked higher with the post-inventory data drop in WTI crude prices, taking the pairing from 1.3160 to intra day highs of 1.3212. Oil was on three-month lows, trading to near $41.50/bbl. The market remains long of USD-CAD, and we suspect traders will take advantage of the most recent rally to sell into. The four-month highs of 1.3144 posted on Tuesday remains the next resistance level. Post-FOMC, the pairing printed 1.3254 highs, a new trend top, before settling into 1.3210.

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