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By XE Market Analysis July 22, 2013 3:41 am
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    XE Market Analysis: Europe - Jul 22, 2013

    The dollar was easier on USD-JPY profit taking after the LDP secured a majority in the Upper House elections, which was in line with expectations. The G20 pledged to put growth before austerity in order to revive the global economy, which was still 'too weak', though it warned that it would adjust these policies with care in order to avoid volatile markets. The communique also acknowledged the benefits of expansive policies in the U.S. and Japan but highlighted the recession in the euro zone and a slowdown in emerging markets. It also noted risks related to unintended negative side effects of extended periods of monetary easing and said future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated. Gold jumped on news that the Fed is reviewing the 2003 decision of allowing regulated banks to trade in the commodity market.

    [EUR, USD]
    EUR-USD traded up to the 1.3170 area as USD-JPY losses guided broader movement. Follow through demand for EUR was limited though after Portugal government talks broke down, which is now a potential event risk for the market. Portugal was talking with the main political parties to reach an agreement on a national salvation pact in order for it to stay on track with the previously agreed bailout deal. However, PM Coelho has ruled out a snap election. Note, in recent sessions EUR has met very good sell interest from 1.3170 and there are good offers tipped from 1.3200.

    [USD, JPY]
    USD-JPY started the session around the 100.75 region, but moved steadily lower as profit taking drove movement in Tokyo trade. It fell to the 100.00 region and specs then fished for stops to open up a move on 99.60. The downturn in USD-JPY was accompanied by similar price action in the Nikkei, which also gave back a 1%-plus rally and was slightly negative on the session. However, real money and importer bids on dips saw it back up to trade close to 100.00 by the Tokyo close. There is still optimism that the Nikkei will sustain the uptrend as the LDP election victory raises the prospects for more economic reform, which should be a long-term positive for USD-JPY.

    [GBP, USD]
    Cable is on the firmer side as dollar losses in Asia kept it within reach of the 1.5300 level. Stocks in Europe are also higher, which is helping the risk backdrop and Cable may have scope to trigger buy stops a bit higher up. EUR-GBP could add traction to the move if very large sell stops are successfully targeted from 0.8590. London sources said on Friday that there are a cascade of sell stops there are layered through 0.8590 to the 0.8560 region.

    [USD, CHF]
    EUR-CHF is trading close to the 1.2360 area after it was unable to sustain higher levels on Friday. The slightly easier tone is being influenced by USD-CHF moves. The dollar pairing has come under pressure amid a rise in risk appetite and general dollar selling in Asia, which was fueled by USD-JPY weakness. Swiss participants may also be wary of news from UBS and Julius Baer, which announced net inflows in its latest results. On the weekend, SNB chief Jordan said he has no intention of changing or scrapping the EUR-CHF floor at 1.2000.

    [USD, CAD]
    USD-CAD is closing in on support at 1.0350, where bids have supported in recent session. The rise in risk appetite from the European open has supported CAD$ and sell stops lower down in USD-CAD are at risk. USD-CAD may be poised for a push into the 1.0300 region. USD-CAD sellers are noted from the 1.0370 region and 1.0400 is also a good area for short positions currently, with offers from the middle of last week being lowered to more realistic levels.

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