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By XE Market Analysis November 6, 2013 2:31 am
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    XE Market Analysis: Europe - Nov 06, 2013

    The FX majors consolidate in Asia and were largely unchanged from Tuesday's N.Y. closing levels. Good U.S. data revived expectations that the Fed could taper policy in December, which provided a modicum of support for the dollar on dips, though larger flows were still minimal ahead of Thursday's ECB policy outcome and key U.S. data later this week. EUR continued to move in a narrow range close to 1.3500 and USD-JPY traded around 98.50 in Asian trade. The BoJ minutes underlined expectations that the recovery is on track, though it cited Fed taper as a risk to Japan. The Australia trade balance saw a narrower than expected deficit of A$0.3 bln from A$0.7 bln previously. NZ Q3 employment improved by 1.2% on the quarter, leaving the unemployment rate at 6.2% from 6.4% previously.

    [EUR, USD]
    EUR-USD traded close to the 1.3470 area for a large part of the session until EUR-JPY demand picked up in line with positive corporate news in Japan. A EUR-JPY bid lifted EUR-USD back through 1.3500 and it extended to the 1.3520 region in thin trade. There are still short-term accounts fading rallies into 1.3530 and 1.3550, with ECB rate cut expectations still alive after recent CPI weakness and yesterday's dip in PPI data. However, some bank research desks think markets may be over-positioned for an ECB rate cut this week and could be in for disappointment.

    [USD, JPY]
    USD-JPY continued to chop either side of 98.50. EUR-JPY was on the heavier side early on, which acted as a drag on USD-JPY prices, but Japanese names propped the pair up into the 98.35 area and it edged out highs of 98.75 during the Asia afternoon. The Nikkei rally boosted USD-JPY and the JPY-crosses, with intra-day accounts responding to very positive news from Toyota Motors and Mitsubishi Motors. USD-JPY bias remains with the topside, especially with Fed taper risk on the rise again. However, there are still option strike congestion influencing towards 99.00 and these will cap in the very near-term.

    [GBP, USD]
    GBP consolidated gains, with Cable trading comfortably above 1.6050 and EUR-GBP is marking time under 0.8400. Tuesday's jump in U.K. services PMI was the catalyst for a shift in the rates market, as well FX. Cable has basically returned to the middle of the recent trading range, but Tuesday's action has negated the bearish overhang on the daily chart, which will encourage dip buying in the very short term. EUR-GBP looks likely to remain heavy into the ECB meeting, yet could present a buying opportunity if 0.8350 or below deals over the ECB decision, as we think the ECB could disappoint rate doves for at least one more month.

    [USD, CHF]
    CHF is still mixed. EUR-CHF is trading close to 1.2300 and USD-CHF is elevated above 0.9100. Price action is taking its lead from USD and EUR fluctuations. EUR is struggling to sustain higher levels ahead of Thursday's ECB rate decision, while firmer U.S. data has revived Fed taper risk for December, which raised the importance of near-term data releases on Thursday and Friday. These include preliminary Q3 GDP and NFP data.

    [USD, CAD]
    USD-CAD was tied to a narrow trading band. It continues to find support into 1.0425, while running into offers at from 1.0450-60. However, supply may not be as heavy as it was last week when option barriers at 1.0500 influenced, along with real money demand for CAD. The downturn in risk assets has also added weight on the CAD tone, and it may threaten last week's peak just ahead of 1.0500 in the coming sessions.

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