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By XE Market Analysis November 12, 2013 2:04 am
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    XE Market Analysis: Europe - Nov 12, 2013

    FX Markets remain in a holding pattern for the most part after Friday's much better than expected U.S. NFP print in October, which ramped up Fed taper expectations and boosted stocks. Yesterday's partial holiday in the U.S. and Canada lowered activity, though JPY continued to underperform amid appetite for leverage trades. USD-JPY cleared 99.50 option barriers in early trade and held on to firm levels throughout the session. EUR-USD traded close to 1.3400 throughout, which was little changed from Monday's session. The GBP upside was hampered by sovereign account repositioning and support in the EUR-crosses, including EUR-GBP. AUD-USD slipped lower amid disappointing business survey results from NAB, which revealed flat business conditions and a downturn in confidence. Investors continued to await details from China's Third Plenum, which ends today and should outline the roadmap for government policies over the next ten years.

    [EUR, USD]
    EUR-USD consolidated near 1.3400. The EUR made up ground against several currencies on Monday, though repositioning was exacerbated by thin conditions and was a function of last week's outsized losses in the wake of the surprise ECB rate cut and dovish policy rhetoric. A pick up in stock markets over the last 24 hours or so put a floor under EUR-JPY over 133.00. EUR-GBP moved out of 0.8345-50 toward 0.8600 and EUR-CHF was stable at 1.2330. Upside momentum in the EUR components is still being compromised by the ECB's policy stance and the near-term risk is for another push back to last Thursday's lows.

    [USD, JPY]
    USD-JPY was supported on dips by Japanese retail names, which were active via the dollar pairing and the JPY crosses as stocks firmed up and U.S. yields remain elevated. Buyers were noted around the 99.10 area and successfully tripped stops through 99.50 barriers. Follow through was limited to 99.60 amid exporter offers, though there was no pullback of significance and bids close to 99.50 maintained a bid tone into the Tokyo close. After last week's firmer U.S. data the risk of a run on 100.00 is much greater than it has been for several weeks, though outstanding options will slow the pace of any push higher.

    [GBP, USD]
    Cable is just about holding on to levels ahead of 1.5950, where it also found buyers last Friday and Monday following the large drop over the NFP reading from 1.6085. Fundamentally, there are still strong arguments to remain long of GBP after U.K. data strength last week. Thursday's steady hand from the BoE was to be expected after the BoE has already laid a well defined forward guidance strategy. It has another opportunity to refresh its position on Wednesday when it releases the Quarterly Inflation Report. The weekend press suggested that the BoE could up its growth outlook and pave the way for an earlier interest rate rise. With this risk in mind GBP should remain supported in the early part of the week. Today the focus will come from U.K. CPI data.

    [USD, CHF]
    CHF is mixed amid contrasting flows in EUR and USD. USD-CHF moved back into 0.9200 compared with last week's 0.9250 peak. The impact on EUR-CHF was muted as EUR-USD drifted higher. The dollar is still expected to trade on the firmer side amid a rise in Fed taper expectations, though a period of sideways movement may influence in the near-term before trending higher again. The SNB are likely to monitor the EUR outlook after ECB rate cut reinforced downside pressure. SNB's Jordon said last week that the ECB rate cut created a "complex situation" and that the SNB needs to wait to assess the impact of the move. So far, EUR-CHF movement under 1.2300 has been limited by local name bids into 1.2275-80.

    [USD, CAD]
    USD-CAD has pulled back modestly after it moved over 1.0500 in the aftermath of the better U.S. and Canadian employment reports, bouncing to 1.0503 from near 1.0450. On Friday it was the first time since September 6 the pairing traded on 1.05. However, follow through demand was contained by corporate demand and there were light macro fund orders. We still maintain that in the bigger picture, as the U.S. economy improves, the CAD should benefit.

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