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By XE Market Analysis June 20, 2013 10:40 am
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    XE Market Analysis: Europe - Jun 20, 2013

    The dollar held on to a firm tone in Asia following Wednesday's strong rally in the wake of the Fed policy statement and accompanying press conference. It was noted that diminishing downside risks to the economy could see a reduction in QE purchases later this year, which weighed heavily on global equity markets. In Asia, a further deterioration in sentiment was noted after HSBC's preliminary manufacturing PMI reading hit a nine-month low of 48.3 in June. AUD and NZD both fell sharply through 0.9250 and 0.7850 respectively. For AUD, it was its lowest levels in 33-months.

    [EUR, USD]
    EUR-USD consolidated losses in Asia after it plunged from over 1.3400 to the 1.3260 region in N.Y. and edged into the 1.3250 area overnight. There were light supportive bids from a sovereign name, which fueled an early move out of 1.3260 to 1.3300, where fund offers were noted. The crosses may provide a modicum of support in the European morning. EUR-AUD is well bid over 1.4300, EUR-CHF is stable ahead of 1.2300 with the SNB policy review in focus, while EUR-GBP is trading firmly just a short distance from 0.8600. Specifically for EUR-USD there are option expiries between 1.3200 and 1.3250 that may attract given the underlying trend has shifted dramatically to the downside following the Fed outcome.

    [USD, JPY]
    USD-JPY jumped to the 97.00 region on the Fed statement and managed to hold on to all of its gains during the Tokyo session. There were profit take orders and exporter interest, which capped for a time in early trade. However, importers were strong buyers between 96.50 and 96.30, while U.S. funds had aggressive bids placed ahead of 96.00. Macro accounts fueled a move up to 97.20 in late Asia after stops gave way just behind 97.00. The better USD-JPY tone boosted EUR-JPY to 128.80 and GBP-JPY was also a beneficiary and moved up to 150.00. However, specs may be cautious of getting over exposed to the crosses given the global risk backdrop, but the interest rate outlook in the U.S. and Japan should keep USD-JPY underpinned on dips.

    [GBP, USD]
    Cable remained on the heavy side in Asia following the sharp drop in the wake of the Fed policy statement. After hitting 1.5480 after the Fed it extended below 1.5450 overnight. EUR-GBP maintains a bid tone just a short distance from 0.8600, which is also keeping Cable movement skewed to lower levels. However, it is trading at much weaker levels than we've seen of late and should fuel some bargain hunting, while excessive shorts may also see value in reducing positions. Meanwhile, EUR-GBP is trading close to levels where reserve managers have actively hedged positions over the last two months.

    [USD, CHF]
    EUR-CHF is marking time just ahead of 1.2300 after it was unable to sustain the spike over 1.2365, which came in the wake of heavy USD-CHF gains after the FOMC outcome. USD-CHF pulled back from spike highs over 0.9320 and is trading around 0.9280, which added weight on the EUR-CHF tone, along with follow through supply in the cross as local names looked towards the SNB policy outcome. The SNB is likely to keep monetary policy unchanged. With the Eurozone still stuck in recession the fundamental outlook has not really changed. The central bank will keep the door open for further moves should the situation worsen again, but with the risk of overheating real estate markets it is likely to stay put for now, especially as Eurozone confidence indicators are beginning to improve.

    [USD, CAD]
    USD-CAD was steady overnight and extended into the 1.0300 region. After rallying sharply over the FOMC outcome it pushed up from 1.0280 as the dollar added to gains, while the commodity bloc currencies were also adversely impacted by the weak China preliminary manufacturing PMI reading. Further dollar upside may slow though due to heavy corporate offers from 1.0325 to 1.0365.

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