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By XE Market Analysis June 27, 2013 3:37 am
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    XE Market Analysis: Europe - Jun 27, 2013

    Sentiment in early Europe is positive after a relatively calm Asian session as concerns over central bank policy recede. The EUR is trading on a steadier footing as the USD eased overnight on risk appetite. The disappointing U.S. GDP revision reduced expectations over Fed tapering and the dollar has traded more like a funding currency again overnight, though we still think the dollar downside will remain limited as most recent U.S. economic data has still improved. USD-JPY is testing levels back over 98.00 on yen selling, but there are good offers towards 98.30-40. Today's eurozone releases should highlight improving sentiment, but lending growth is expected to remain soft. The U.K. GDP revision is not expected to deviate from the previous outturn. Today's Italian debt auction will test market sentiment following the recent banking sector stress and reports of potential losses related to derivatives restructuring at the height of the eurozone crisis.

    [EUR, USD]
    EUR-USD found a modicum of support on dips after it started the Asian session above 1.3000. However, further gains were limited due to lack of momentum. The recent move lower and ECB policy rhetoric is still restricting the upside and short term accounts are still more likely to sell into strength. Dovish commentary from ECB officials should continue to weigh and the market may well eye 2013 lows around 1.2745 in the coming days.

    [USD, JPY]
    USD-JPY and the JPY crosses were supported by Asia equity markets gains, which included a decent Nikkei rally. USD-JPY headed back over 98.80 on positive risk appetite, but struggled to overcome offers ahead of 98.00. Momentum was limited after MoF flow data revealed that Japanese investors were net sellers of foreign bonds again. There are good orders are both sides of the markets, which suggests that more rangebound action could continue in the near-term. USD-JPY's failure to close over 98.00 this week should still encourage selling pressure on upticks, but for now Japanese buyers are keeping the pair supported on a 97 handle, with bids noted from the 97.25 area.

    [GBP, USD]
    Cable is struggling amid underlying dollar strength and ongoing month end related demand for EUR-GBP. The cross is now pushing back across 0.8500, which has forced Cable to the 1.5300 region, where buyers were noted into yesterday's N.Y. close. A clean break lower will reinforce downward momentum, though given the improving economic fundamentals in the U.K. we expect buyers to take advantage of moves into 1.5250 and 1.5200.

    [USD, CHF]
    USD-CHF is supported ahead of 0.9400 as positive technical indicators and a rise in risk appetite kept the downside underpinned overnight. The upside has generally attracted after an initial kneejerk dip amid the downward revision in U.S. GDP. The U.S. data allayed fears of Fed policy tapering and this has boosted demand for USD-CHF. From a macro perspective the U.S. economy is still doing better than its peers, making USD-CHF longs an attractive trade.

    [USD, CAD]
    USD-CAD's correction extended through 1.0425 after the European open as a rise in risk appetite boosted demand for the commodity bloc currencies. However, dollar buying picked up into this region and it gravitated back to the 1.0450 area. Equity markets and commodities may guide action intra-day. However, there is also month-end flows to contend and this may make for a choppy 24 hours or so.

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