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By XE Market Analysis July 17, 2013 3:21 am
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    XE Market Analysis: Europe - Jul 17, 2013

    Activity in Europe is expected to be muted ahead of today's testimony from Fed Chairman Bernanke. We've already seen a moderate dollar correction by speculative longs and further dollar selling may be restrained from here. The EUR move back over 1.3100 and through 1.3150 has left the balance of risk on higher levels, but there will be zero interest to establish fresh positions. Ahead of the U.S. open the impetus for European markets will come from the U.K., where labour market data is due, along with the BoE minutes. Since the BoE introduced forward policy guidance sterling has experienced limited upside. Meanwhile, China Premier Li offered more supportive words on the economy overnight and the Commerce Ministry said China will come up with measures to support both exports and imports.

    [EUR, USD]
    EUR-USD maintained a supportive tone. It started the session close to 1.3160, but did not retest yesterday's 1.3175 highs and drifted lower in line with the USD-JPY upturn. Over the Asia afternoon EUR traded into the 1.3135 region. Ranges are expected to remain narrow over the course of the European session. Yesterday's move up through 1.3100 and 1.3150 should encourage light demand on dips, but overall dollar repositioning may have run its course.

    [USD, JPY]
    USD-JPY started the session just in front of 99.00 following Tuesday's drop to 98.88 lows. Japanese demand lifted the pair back into the 99.50 area. However, follow through was limited as interest was low ahead of today's U.S. open and the pair drifted back through 99.40 amid fund selling. The BoJ minutes were uneventful and were consistent with an unchanged policy stance.

    [GBP, USD]
    GBP met early macro fund sell-interest, with light repositioning going through ahead of the BoE minutes and U.K. labour market data. Since the BoE provided forward policy guidance the upside in sterling has been mostly limited with the exception of last week's Bernanke-inspired gains in Cable. We think the minutes should underpin expectations that policy will remain on hold for the foreseeable future. However, it will be interesting to see what input the new Governor Carney had on his first meeting in charge. Note, there are another heavy congestion of option expiries today at 1.5100, 1.5125 and 1.5150.

    [USD, CHF]
    CHF has held firm up against the EUR and the USD following yesterday's rally. Most of the action was dominated by position reduction by dollar longs ahead of Bernanke. Nerves are running high, bearing in mind last week's outsized moves over the FOMC minutes and the subsequent speech from Bernanke. Dollar long liquidation triggered a downturn from just ahead of 0.9500 to the 0.9380 region, but it does look as if the move out of the dollar has now run its course. EUR-CHF pulled back from the 1.2400-05 region to 1.2355-60 as short term funds were reluctant to put on leverage trades in light of the pending event risk.

    [USD, CAD]
    USD-CAD has pushed back over the 1.0400 level following yesterday's dollar correction, which triggered a move into 1.0365. Today's BoC monetary policy decision is in focus, as well as the Bernanke testimony, making USD-CAD a difficult call. New BoC Governor Poloz could pull back a bit from the tightening bias, which will drive USD-CAD higher. However, there are wall of good offers between 1.0470 and 1.0500. On the downside, sell stops are noted below 1.0350.

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