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By XE Market Analysis July 9, 2013 2:24 am
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    XE Market Analysis: Europe - Jul 09, 2013

    The FX majors continued to trade in tight ranges in another session of consolidation. EUR traded just ahead of 1.2850, Cable was close to 1.4950 and USD-JPY traded around the 101.00 region. China released the first batch of its monthly data releases. Both the June CPI and PPI readings came in close to market expectations at 2.7% y/y and -2.7% y/y, respectively. The headline inflation rate will make it difficult for Beijing to provide stimulus. There was some decent price action via AUD either side of 0.9100 after a weak NAB survey underpinned rate cut expectations.

    [EUR, USD]
    EUR-USD was supported overall as short covering activity forced a move up to the 1.2880 region on Monday. Gains in Asia were limited for a time by sell-interest from 1.2870-80 as short term funds still keyed off the bearish underlying trend. The macro picture also points to further losses. The ECB backed an extended period of accommodative policy last week, while U.S. data reinforced Fed policy tapering expectations. However, EUR movement under 1.2850 is being stymied by corporate backed bids, but more importantly, large outstanding barriers at 1.2800 are still being well defended.

    [USD, JPY]
    USD-JPY ended the session just in front of 101.00, leaving near-term bias on the topside. There was an early push on lower levels by short term funds. Stops gave way on the way to 100.77 lows, but Japanese buyers emerged and the pair headed back over 101.20. Good Japanese support is expected to underpinned from 100.75-80 and ahead of 100.50. The potential for a successful move through 102.00 barriers could increase later this week as several large structures roll off over the coming two sessions.

    [GBP, USD]
    GBP is holding on to a better tone at the start of the European session after it extended the short covering rally on Monday. Cable edged out 1.4967 intra-day highs as the dollar came under light selling pressure on repositioning, while some of the easier tone came as equity markets pushed higher. The potential for more sterling inflows remains high amid improving fundamentals, along with flows related to the sale of the government's stake in Lloyds Bank.

    [USD, CHF]
    EUR-CHF continued to push higher and extended to the 1.2430 area in early trade after it cleared 1.2400 for the first time in nearly a month on Monday. It has maintained a supportive tone since it bottomed out just under 1.2220 on June-24, where good long-term money emerged. EUR-CHF has benefited to a degree on the modest EUR correction, but in recent weeks its impetus came from dollar strength. USD-CHF pulled back a bit today after it ran into congestion around 0.9650-60. However, the bias is still on higher levels and another push on 0.9700 barriers. Long term macros are still happy to play for a run through parity by late Q3, which should keep EUR-CHF elevated in theory.

    [USD, CAD]
    USD-CAD is still trading off its best levels, trading quietly at 1.0550, after peaking at 1.0585 on Monday versus last week's 1.0609 highs. Firmer equities provided some weight on the pairing, though it has met natural dollar demand on dips. Short term accounts are still positive on this pairing amid the underlying dollar tone. Bids should slow the decline towards 1.0530 and 1.0500 for a move back on the 1.0600 region.

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