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By XE Market Analysis November 12, 2013 1:45 pm
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    XE Market Analysis: Asia - Nov 12, 2013

    FX Trade was fairly light through the N.Y. session, following a busy London morning. The greenback was mostly lower on net, though marginally so, as stocks gave back some, and Treasury yields dipped before bouncing back. Aside from the Chicago Fed index, the U.S. economic calendar was empty, and overall, markets were fairly quiet. Data releases are lacking for Wednesday as well, and we generally look for the USD to consolidate near recent levels. EUR-USD picked up from 1.3400 to over 1.3450, as USD-JPY hovered between 99.50 and 99.75.

    [EUR, USD]
    EUR-USD touched 1.3445, as short covering continued, following its move to 1.3350 in London. Initial resistance is seen at 1.3450-60, which represents the post-ECB bounce highs. Stops should be a factor over the level, and a break could see 1.3500 targeted again. The ECB's Asmussen said the ECB has not yet reached the limits on what it can do on interest rates depending on inflation developments, which weighed on the euro in London. However, with the market very short of euros following the rate cut last week, and renewed Fed Taper prospects, positions may need to come unwound some before new euro lows can be searched out.

    [USD, JPY]
    USD-JPY consolidated gains as 100 held during the European morning. Japanese bank orders put a top in place at 99.80 and was the catalyst for a minor correction. The downturn in USD-JPY has been absorbed by very heavy EUR-JPY demand, while GBP-JPY has also posted a moderate correction. There is very large exposure in USD-JPY from 100.00, though topside protection has increased via plain vanilla demand and exotic structuring. There is reportedly significant exposure from 101.00 and 103.00 that is due to roll off late December and held by a leading investment house. These positions could be threatened if Fedspeak backs up policy tapering in December. We anticipated elevated interest for topside hedging and vol has also backed up to reflect this risk.

    [GBP, USD]
    Cable reclaimed 1.5945 as the dollar bid moderated, while an extended short covering rally in EUR-USD also gave the pound some legs on the topside. Bids ahead of 1.5850 during the European morning were heavily influenced by outstanding option barriers. The move was also a bit overdone and looking at the bigger picture a cooler CPI reading is a positive in the medium term. The number will ensure that BoE maintains forward policy guidance at a time when the U.K. economy is showing signs of a self sustaining recovery. We expect corporate hedging to go through at current levels, while Asian reserve recycling could also be a benefit. There is some near-term resistance on the short term chart toward 1.5940, while the daily chart is well under water and should drag ahead of tomorrow's BoE Inflation Report.

    [USD, CHF]
    CHF was mixed amid contrasting flows in EUR and USD. USD-CHF moved back into 0.9160 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 put in a two-month high over 1.0505 overnight, following the greenback's generally firmer tone in the aftermath of better U.S. data last week. Further gains have been thwarted by reported offers from 1.0510 however, and with bids in place from 1.0480, the pairing may find itself in a narrow, though higher trading band for now. There was little in the way of data to drive prices, so focus may continue to remain on U.S. yield performance and risk levels.

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