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By XE Market Analysis June 21, 2013 3:35 am
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    XE Market Analysis: Europe - Jun 21, 2013

    The dollar eased a touch after it corrected overbought levels. However, sentiment was still negative, leaving stocks under pressure and commodities remained on the backfoot, albeit off yesterday's lows. USD-JPY was choppy due to early weakness in stocks, though the tone improved as the Nikkei moved into positive. EUR traded into 1.3255, Cable edged over 1.5500 and AUD-USD headed into 0.9250. China liquidity problems remained in the spotlight despite some easing in money market rates. However, the 7-day repo still traded as high as 25% and as low as 8.1% versus 28% highs on Thursday, which underlines the difficult conditions.

    [EUR, USD]
    EUR-USD firmed up from 1.3200 to 1.3255 on short covering activity. A EUR-JPY rebound was a positive lead, while EUR-CHF recovered from the 1.2240 back over 1.2270, which helped the headline rate. The balance of risk for EUR-USD remains on the downside given the economic fundamentals in the U.S. compared with the euro-area. Selling pressure is likely on upticks by macro funds, though the risk of a short squeeze into the weekend is possible if stocks can pullback from the brink. Overnight, eurozone ministers agreed on guidlines for bank bailouts.

    [USD, JPY]
    USD-JPY ended the session just a short distance from 98.00, leaving it approximately a big figure higher compared with intra-day lows of 96.86. An early sell off was fueled by a downturn in equities, which fueled fund selling. Into 97.00 and below there were good bids from macro funds and option accounts, which put a floor in place. Speculative demand for the JPY crosses also rose as the Nikkei overcame an early dip and bucked the trend to move into positive territory. USD-JPY traded at 97.88 highs, while EUR-JPY was supported around the 129.50 region versus early lows around 128.20. AUD-JPY was boosted from the 89.00 region over 90.00 as sentiment improved, along with news that two Japanese companies will purchase a stake in BHP Billiton's iron ore mine for AUD 1.64 bln. Meanwhile, Japan's Amari and Suga talked up corporate tax cuts as an option to boost the economy.

    [GBP, USD]
    Cable is trading over 1.5500 today as the dollar corrects some of the excessive gains seen in the wake of the Fed outcome. Also providing a modicum of support is 1.5500 expiries, which are rolling off for today's N.Y. cut. The move higher has shaken out some weak positions, though the downturn from Monday's 1.5753 trend high remains a negative influence on the daily chart. We still expect more position traders to sell into strength.

    [USD, CHF]
    EUR-CHF recovered in Asia out of 1.2240 and traded back over 1.2270. However, it is still moderately weaker compared with yesterday's post-SNB levels. The downturn in the cross was influenced by a USD-CHF correction. It pulled back from the 0.9350 region to 0.9240 over the U.S. releases and the N.Y. options cut. From here, equity market chop and position adjustment will guide action into the weekend. EUR-CHF should find decent support on dips, with large orders noted into 1.2220. USD-CHF buy orders are noted from 0.9235-40 and towards the 0.9200-20 region.

    [USD, CAD]
    USD-CAD pulled back a bit after 1.0400 held on Thursday. However, the underlying tone is still firm. Equity markets are still fragile and commodity markets remain heay, albeit at slightly improved levels as markets correct ahead of the weekend. We expect dip buying to persist in USD-CAD, with better demand seen into 1.0335 and 1.0320. There is interim resistance from 1.0400, where sovereign names were tipped recently, but a break of there will see the May 29, 2013 peak of 1.0420 targeted eventually.

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