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By XE Market Analysis November 28, 2013 10:50 am
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    XE Market Analysis: Asia - Nov 28, 2013

    The FX majors consolidated moves during the European afternoon as the U.S. Thanksgiving holiday weighed on volumes. USD-JPY carved out a new trend high at 102.37 and then stalled as large option barrier exposure from 102.50 capped. EUR-USD was static at 1.3600 as resistance at 1.3625-30 capped an early rise in Europe, which also left USD-CHF close to 0.9050 throughout. GBP experienced more choppy action again today. Month-end related selling went through via the crosses, but Cable pushed up to new trend highs after the BoE decided to end its Funding for Lending Scheme. Technically, it is a tightening move, but the BoE will refocus its efforts on lending to SMEs and it will also enable it to maintain forward guidance as long as necessary in order to ensure a self-sustaining economic recovery. Elsewhere, the dollar held firm against the commodity bloc, leaving AUD under 0.9100 after offers at 0.9150 capped, while USD-CAD toyed with the 1.0600 region for the second consecutive session.

    [EUR, USD]
    EUR-USD probed the topside again. European market participants digested the Eurozone data mix, which underlined the diverging views on ECB policy. Headline inflation accelerated in Spain and some German states and reinforced the view that ECB will stay on hold next month. However, a poor M3 money supply growth reading of 1.4% y/y is an argument for further measures to kick start lending. A EUR move out of 1.3570 through 1.3600 in early trade encouraged a few follow through buyers and thin conditions enabled it to push on 1.3620. There are resistance levels between 1.3625 and 1.3650 that should slow the pace of the rally, though.

    [USD, JPY]
    USD-JPY and the JPY crosses maintained firm levels following yesterday's strong rally. Light profit taking went through, which capped USD-JPY over 102.30, but the downside was supported throughout into 102.00 from importers and fund names. USD-JPY movement on the topside could be on the slow side due to very large option barriers from 102.50, while there are also huge barriers from 103.00-103.25 held by a U.S. account for expiry on December-20.

    [GBP, USD]
    GBP month-end flows went through in quiet trade. After the heavy bout of macro and real money demand against several currencies yesterday the balance of GBP interest early on was on the sell-side. EUR-GBP month-end demand was noted from 0.8320 to 0.8350 and GBP-CHF corporate hedging went through from 1.4810 down to 1.4740. However, once the moves ran there course GBP remained buoyant and Cable chopped down from 1.6345 to 1.6300 early on and then up to trend highs over 1.6350. EUR-GBP fell from 0.8350 to 0.8315 and GBP-CHF retraced the move from 1.4810 to 1.4740 and held the 1.4800 level. The BoE's Financial Stability Review noted the pick up in house price inflation, but did not think it represented a threat to stability currently. However, the funding for lending scheme from January 2014 will be refocused solely on SME lending as the housing market no longer needs support.

    [USD, CHF]
    EUR-CHF recovered modestly in front of 1.2300 yesterday and headed back through 1.2330 during the N.Y. session. The move higher was a function of USD-CHF firmness, though follow through was limited overnight due to the U.S. holiday. Movement in EUR-CHF should remain limited in our opinion as EUR-USD gains stalled out. There is also good support under 1.2300 from local names that are buying ahead of 1.2280, which has held since early October. The SNB have also reiterated its policy stance on any downside threat over the last few months and earlier in the week it warned that it was willing to defend the franc cap in unlimited amounts and also consider other policy options if needed.

    [USD, CAD]
    USD-CAD edged up to 1.0600 as positive momentum fueled a move up from 1.0570. There was a modest correction from new trend highs just over 1.0600, which ran its course, leaving bias on a test of 2013 highs at 1.0609 from July-5. CAD$ showed more sensitivity to the fall in industrial product prices and added justification for the BoC's policy stance, though the current account deficit narrowed. Adding to the softer CAD$ tone is the downturn in oil prices, which could have further to run as a persistent build in inventories raises concerns over the demand outlook. With these influences in mind a U.S. house tipped a USD-CAD move to 1.1400 this week in one of its top-10 trades for 2014.

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