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By XE Market Analysis July 3, 2013 1:50 am
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    XE Market Analysis: Europe - Jul 03, 2013

    The dollar maintained a bid tone as equity markets experienced broad losses. Negative influences on Tuesday fueled a flight to safety ahead of the ECB policy decision on Thursday and Friday's NFP data. There were concerns over a regime change in Egypt, which lifted oil into $100 bbl. In Portugal, the government was under pressure after ministerial resignations over austerity, while Greece's next bailout tranche could be comprimised over its inability to meet reform targets. Asia markets continue to worry over a China slowdown after non-manufacturing PMI data slowed to 53.9 in June from 54.3 in May. AUD traded at new trend lows just under 0.9100 amid more dovish rhetoric from RBA Stevens. Meanwhile, underlying dollar strength saw USD-JPY trade just a short distance from 101.00, EUR traded heavily around 1.2970 and Cable remained close to 1.5150.

    [EUR, USD]
    EUR-USD remained under pressure after it made a clean break below 1.3000 during Tuesday's N.Y. session. Dollar buying forced a move through large sell stops at 1.2985, but follow through was a bit disappointing and it only extended as far as the 1.2965 region. The fundamental backdrop is still favorable for more downside pressure, which should fuel selling pressure on upticks. However, there is still a reluctance to take on large positions ahead of the ECB policy meeting on Thursday and with the U.S. out for Independence Day holiday.

    [USD, JPY]
    USD-JPY maintained a bid tone after it sustained a move through large barriers at 100.00 on Tuesday. Buyers of USD-JPY have been in control since the start of the week. There is growing confidence over potential upside at the start of the new quarter as the Nikkei experienced fresh investment inflows and China money market rates moved back to more orderly and sustainable levels. After trading as high as 100.86 in early trade it did experience light profit taking, which forced it into the 100.45 region. However, underlying dollar strength kept bias on higher levels into the Tokyo close.

    [GBP, USD]
    Cable consolidated Tuesday's losses and traded a tight range close to 1.5150 overnight. It moved through the 1.5140 region on Tuesday amid underlying dollar strength, though GBP has been weighed of late by general selling by specs and EUR-GBP strength. Bias is expected to remain on the downside and bears could target a push through late May lows around 1.5111 and the psychological 1.5100 level into Thursday. The BoE's policy outcome should be a non-event for the market, with a steady hand expected amid a run of improving U.K. data. However, there are expectations that the BoE could introduce more explicit forward policy guidance with Carney now at the helm.

    [USD, CHF]
    USD-CHF headed higher, aided by a firmer dollar as stocks came under pressure. USD-CHF found buyers into the 0.9450 area out of Europe on Tuesday as fund names were tipped ahead of the 100-dma lower down. This provided a prop on the downside since USD-CHF broke higher last week and the bias remains on a sustained move through 0.9500 and resistance at 0.9520. It briefly cleared 0.9530 after the N.Y. open, but follow through was lacking a touch as flows went into the CHF via the EUR-CHF cross, leaving it close to 0.9500. EUR-CHF was easier around 1.2330 versus the 1.2380 area.

    [USD, CAD]
    USD-CAD consolidated gains, leaving it around the 1.0550 region. On Tuesday it spiked to highs near 1.0575, levels last seen in October of 2011. Stop loss buying was a factor on the move over 1.0550, where noted offers at the level were reportedly pulled. Barrier options are seen at 1.0600, and will likely be defended, while talk of fund backed selling ahead the figure limited gains. Ahead of risk events this week, it was not surprising to see profit taking emerge over 1.0575 and it headed back to the 1.0520 area, where good support kept the downside in check.

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