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By XE Market Analysis June 14, 2013 2:27 am
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    XE Market Analysis: Europe - Jun 14, 2013

    Sentiment improved, which supported USD-JPY and it ended the session above 95.00. Movement via USD-JPY tended to guide action and the dollar firmed up against EUR, GBP and the commodity bloc currencies. Yesterday's positive close for U.S. stocks was reinforced by a sharp rebound in Japan. The Diet passed PM Abe's growth plan as-expected, but he also promised more steps after the Upper House elections in July. Meanwhile, fears over Fed policy tapering eased as the latest Hilsenrath column suggested that Bernanke will use next week's meeting to stress that any move lower in the pace of QE won't mean the Fed is close to ending the program. China policy easing expectations also picked up after the China Securities Journal said that the PBoC could cut interest rates and bank reserve requirements in H2.

    [EUR, USD]
    EUR-USD experienced limited upside as offers from the 1.3380 to 1.3400 capped gains. USD-JPY's rallied out of 94.45 back over 95.00 during the Asia afternoon also capped gains, along with EUR-JPY heaviness. EUR-USD headed to the 1.3345 region by late Asia, though early European accounts were buyers into this region. The underlying tone is still skewed to higher levels, but USD-JPY and the crosses are likely to guide action into the weekend.

    [USD, JPY]
    USD-JPY experienced another very choppy session. After squeezing out early highs of 95.80 it lurched lower to hit 94.43 lows as Japanese stocks initially struggled to sustain higher levels. However, sentiment improved in the Asia afternoon as the Diet passed PM Abe's growth plan and also promised more measures after the Upper House elections in July. The Nikkei closed more than 3% higher, which left USD-JPY above 95.00 by the time early European accounts entered the market. However, market doubts over BoJ policy and its ability to manage market volatility may dampen USD-JPY's ability to rise. The large flight out of Japan into overseas assets, which was expected earlier in the year, has also failed to materialise.

    [GBP, USD]
    Cable is holding firm at the 1.5700 levels after it recorded a high near 1.5740 on Thursday. Cable traded a narrow range into the London close. From there, it took EUR-USD's lead, and moved up to near 1.5740, though U.K. names were quick sellers on the 1.57 handle. There was speculation that sell-interest may have been related to an outstanding option barrier at 1.5750. However, in Asia the downside was limited and bias will remain on higher levels in the near-term. GBP continues to enjoy a resurgence in investment inflows as U.K. economic fundamentals point to an improvement in economic activity.

    [USD, CHF]
    The CHF has settled at easier levels as risk appetite improved in N.Y. on Thursday and sentiment held up in Asia. EUR-CHF is trading firmly above 1.2300 and USD-CHF is underpinned above 0.9200. It's likely that stocks will be a heavy influence into the weekend given the recent volatility. Specs may be tentative buyers of risky positions intra-day, but may be reluctance to run aggressive exposure into the weekend. This could limit the EUR-CHF upside over 1.2350, while USD-CHF may pullback a bit after the latest column from Fed watcher Hilsenrath play down Fed policy tapering fears.

    [USD, CAD]
    USD-CAD steadied after stops through 1.0145 held during Thursday's session. However, the upturn in risk appetite in Asia is likely to keep the balance of risk on the downside. Short term selling was noted ahead of 1.0190 in late Asia and more offers are noted across 1.0200, which were lowered from 1.0220-30 yesterday. A move through 1.0145 would accelerate demand for CAD$, though it may be depended on how AUD performs in Europe. There are natural bids anticipated ahead of the 1.0100 region.

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