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By XE Market Analysis November 11, 2013 11:53 am
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    XE Market Analysis: Asia - Nov 11, 2013

    Markets were in a holding pattern after Friday's much better than expected U.S. NFP print in October, which ramped up Fed taper expectations. Activity was quieter than usual due to partial holidays in the U.S. and Canada. Overnight, Asian markets struggle to due Fed taper risk, but in Europe stock markets were encouraged over the U.S. growth outlook and U.S. indices were narrowly mixed. The dollar pulled back a touch on light repositioning, but the underlying trend is skewed to further gains. There was positive data from Asia as China industrial production and retail sales rose 10.3% y/y and 13.3% y/y, respectively. The Japanese current account also rose to a Y587.3 bln surplus in September, which is a 14.3% y/y gain and much stronger than expected. There wasn't much out of Europe to focus on. Into the Asian session investors will eagerly await potential headlines from China's Third Plenum, which will detail the roadmap for government policies over the next ten years.

    [EUR, USD]
    EUR-USD has consolidated firmer levels, leaving it above 1.3400. The EUR made up ground against several currencies today, though repositioning was exacerbated by thin conditions and was a function of last week's outsized losses in the wake of the surprise ECB rate cut and dovish policy rhetoric. European stocks and U.S. futures are higher, which lifted EUR-JPY over 133.00 versus 132.25 at the European open. EUR-GBP moved out of 0.8345-50 toward 0.8600 has forced Cable to 1.5965, though we anticipate GBP dip buying ahead of Wednesday's BoE Inflation Report.

    [USD, JPY]
    USD-JPY consolidated under Friday's 99.40 peak as exporter hedging picked up following Friday's strong bid, which came on higher Treasury yields. USD-JPY pulled back from 99.25 and edged through 99.00 overnight. Follow through under 99.00 was limited though on fund demand and fast money flows. Progress on the topside could be limited in the near-term due to outstanding option barriers, which are linked to range binary positions. On an intra-day basis today's partial holiday in the U.S. should lower interest. However, over the coming sessions the risk of Fed taper in December raises the potential for a run on the 100.00 level.

    [GBP, USD]
    Cable has steadied ahead of 1.5950, where it also found buyers last Friday following the large drop over NFP reading from 1.6085. Fundamentally, there are still strong arguments to remain long of GBP after U.K. data strength last week. Thursday's steady hand from the BoE was to be expected after the BoE has already laid a well defined forward guidance strategy. It has another opportunity to refresh its position on Wednesday when it releases the Quarterly Inflation Report. The weekend press suggested that the BoE could up its growth outlook and pave the way for an earlier interest rate rise. With this risk in mind GBP should remain supported in the early part of the week.

    [USD, CHF]
    CHF edged higher due to a small correction in USD. USD-CHF moved back into 0.9200 from 0.9225-30 overnight and compared with last week's 0.9250 peak. The impact on EUR-CHF was muted as EUR-USD drifted higher. The dollar is still expected to trade on the firmer side amid a rise in Fed taper expectations, though a period of sideways movement may influence in the near-term before trending higher again. The SNB are likely to monitor the EUR outlook after ECB rate cut reinforced downside pressure. SNB's Jordon said last week that the ECB rate cut created a "complex situation" and that the SNB needs to wait to assess the impact of the move. So far, EUR-CHF movement under 1.2300 has been limited by local name bids into 1.2275-80.

    [USD, CAD]
    USD-CAD has pulled back modestly after it moved over 1.0500 in the aftermath of the better U.S. and Canadian employment reports, bouncing to 1.0503 from near 1.0450. On Friday it was the first time since September 6 the pairing traded on 1.05. However, follow through demand was contained by corporate demand and there were light macro fund orders. We still maintain that in the bigger picture, as the U.S. economy improves, the CAD should benefit.

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