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By XE Market Analysis August 13, 2013 2:17 am
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    XE Market Analysis: Europe - Aug 13, 2013

    The dollar traded at firmer levels, with price action supported by a move higher in U.S. Treasury yields. USD-JPY moved into the 97.50 area on a rise in risk appetite amid reports that PM Abe is considering a corporate tax cut, while there were more suggestions that he could also delay the sales tax hike. After yesterday's Japan Q2 GDP disappointment there was more softer than expected data. June core machinery orders fell 2.7% m/m, which was much weaker than expected, but came after a 10.5% uplift in May. AUD entered the Asia close a bit weaker intra-day around 0.9140 after recording a 0.9100 low in early trade. Macro selling picked up and there was added heaviness after the Australia NAB business conditions index came in at an unchanged -7 outturn and confidence came in at -3 from 0 in June.

    [EUR, USD]
    EUR-USD maintained the heavier tone around 1.3300 following Monday's downturn from 1.3340 to 1.3275. So far bids at 1.3265 have held without being seriously challenged. However, the daily chart is pointing to more sideways to lower action as last week's failure on 1.3400 and subsequent weakness indicates waning upside momentum. Last week's EUR gains came despite rising expectations that the Fed are moving closing to tapering policy, which on balance should be more favorable for the dollar in the medium term. However, thin summer markets saw the influence come from technical studies rather than fundamentals. We still anticipate EUR selling to continue on upticks, albeit at slightly higher levels than we initially expected pre-U.S. NFP data.

    [USD, JPY]
    USD-JPY and the JPY crosses headed higher as risk appetite improved. There was added traction for USD-JPY longs from higher U.S. yields, though most of the intra-day moves were due to a Nikkei news piece, which suggested that PM Abe could cut corporate taxes. This followed talk of a delay in the sales tax hike on Monday amid the disappointing Q2 GDP release and core machinery orders also missed expectations by a wide margin today. The USD-JPY upturn gained momentum on buy stops between 97.20 and 97.40 and good fund offers were filled into the 97.50 area, leaving it at intra-day highs by the time Europe entered the fray. There are offers at 97.80 to 98.00, which could come into play as the dollar looks to steepen its bid intra-day, while Japanese accounts have raised their bid and it should be supported from 97.00 and 96.80.

    [GBP, USD]
    Cable continued to trade close to the 1.5450 region amid underlying dollar strength. Cable was perhaps due a correction given the outsized gains since last week's BoE Inflation Report, where the market was reacted to the contingencies in the new forward guidance. U.K. recovery expectations are still holding up on broadly firmer survey data and other anecdotal reports of increasing activity. This should encourage investment inflows in the long-term in theory. However, in the near-term, unless Cable can sustain a close over the 200-dma at 1.5532 it could begin to see selling pressure on upticks. Bids are tipped towards 1.5440, 1.5415 and 1.5400.

    [USD, CHF]
    CHF maintained an easier tone, guided by broader USD movement. A USD-CHF upturn to 0.9285 on Monday enabled EUR-CHF to gain a foothold over 1.2300 and it extended to the 1.2330 area, where it remains in early Europe. USD-CHF faded to 0.9250 in N.Y. dealings, but is still being supported on dips into 0.9250 and 0.9220. Further dollar strength could see EUR-CHF threaten near-term resistance levels at 1.2330-35 and 1.2350.

    [USD, CAD]
    USD-CAD traded in a tight range close to 1.0300 overnight. Monday's move back over the 1.0300 handle was a bullish lead in the short term. However, layered offers from 1.0330 capped further gains, while in Asia there was talk of macro fund rotation out of AUD into CAD, along with support from a firmer equity market backdrop. Bids are layered from 1.0280 from intra-day accounts, while larger bids are tipped at 1.0265 to 1.0245

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