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By XE Market Analysis September 2, 2013 11:42 am
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    XE Market Analysis: Asia - Sep 02, 2013

    The dollar continued where it left off last week and ended the European session on the front foot. It was a poor session for flows with the U.S. and Canada closed for Labour Day, along with a busy week for both economic data and central bank policy. There were still encouraging signs on the global economy as China's official PMI release hit a 16-month high of 51.0 on the weekend release. This was followed by an upward revision in Eurozone PMI and another very strong U.K. data release. U.K. manufacturing smashed forecasts at 57.2 and new order came in at the best levels since 1994. GBP outperformed the European currencies as a result and Cable tested the 1.5600 and EUR-GBP moved into 0.8475. EUR-USD was unable to sustain higher levels even after Eurozone data and headed to 1.3185 into the close. USD-JPY was underpinned after it broke key technical levels after the London open and consolidated gains around 99.30.

    [EUR, USD]
    EUR-USD spent a large part of the session close to 1.3200, where option expiries are rolling off this week. Short term accounts were unwilling to give up dollar longs built up late last week. Today's improvement in risk appetite has tended to weigh a touch on CHF and JPY, rather than the USD perhaps due to this week's event risks. The ECB are still likely to maintain a dovish policy stance and U.S. data should be strong enough to enable the Fed to taper policy in September. Central bankers will still eye with interest developments in Syria and will not want a sustained period of oil price gains. Emerging markets have also been volatile of late as funds reduce exposure in anticipation of Fed policy and the knock on impact on other bond yields. These issues will add complexity to the central bank policy debate, but forward looking indicators and more recent data does point to a broad based recovery in the developed world.

    [USD, JPY]
    USD-JPY posted the biggest footprint in Europe as specs tripped stops in early trade. A move through the bottom of the Ichimoku cloud at 98.75 was the catalyst Japan bank demand for USD to cover customer buy stops. Once 99.00 gave way model funds and momentum accounts forced a move through exporter offers to 99.10 and daily highs from August-5 and August-23 at 98.15. In the process the Ichimoku cloud top was cleared away at 99.20 and it extended to the 99.30 region. USD-JPY has not traded on 100.00 since it topped out at 99.95 on August-2 and the last time it trade above that level was late July. Positioning over the week will be dependent on how the risk backdrop unfolds and whether U.S. data firms up into Friday's NFP release.

    [GBP, USD]
    GBP rallied after U.K. manufacturing PMI hit 57.2 in August, which was the highest level since February 2011. The July reading was revised to 54.8 from 54.6 previously. Cable was stable ahead of the release at 1.5550 and hit 1.5594 highs, while EUR-GBP filled in support at 0.8480 to register lows of 0.8472. GBP benefited in early trade on news that Verizon and Vodafone finally reached an agreement on the GBP 130 bln deal. However, it is widely thought that the majority of the hedging related to this deal was done months ago via the options market and may not have a long-term impact. The short term bias should remain with the topside. Last week's move under 1.5500 ran into good support and long-term money is still looking to position for further gains as BoE policy underpins expectations of a sustained recovery in the U.K.

    [USD, CHF]
    EUR-CHF edged out a modest rally, led by a pick up in risk appetite. The immediate risk of military action against Syria faded further as U.S. President Obama also decided to put the issue to vote in Congress, which will reconvene on the September 9th. Aiding the better tone was encouraging manufacturing PMI data from China. EUR-CHF firmed up from 1.2310 and moved just over 1.2330. Upward momentum may run out of steam from here due to a build up of offers between 1.2330 and 1.2350. Swiss manufacturing PMI slowed to 54.6 from 54.4, which was weaker than expected, but should not have a large impact on price action. Elsewhere, SNB's Jordan said that the CHF cap is still important as sudden strengthening cannot be ruled out in the current environment. Jordan said that expansive policy was still justified and expected Swiss inflation to remain low in the coming years. However, he said that SNB had the option of draining liquidity in the case of any inflation risk.

    [USD, CAD]
    USD-CAD headed higher as the USD maintained a firmer tone throughout. In early Europe there were dip buyers from the 1.0520 area and then over the afternoon session it gradually moved into the 1.0550 region as dollar demand steepened. From a technical perspective there is still scope for a sustained move on higher levels, with early July highs at 1.0609 a near-term target. There are still very good offers into the 1.0570 area related to outstanding option structures between 1.0575 and 1.0600.

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