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By XE Market Analysis November 27, 2013 2:58 am
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    XE Market Analysis: Europe - Nov 27, 2013

    FX markets in Asia were thin ahead of tomorrow's U.S. Thanksgiving holiday and month-end. Intra-day accounts keyed off short-term technical indicators, which enabled EUR-USD to post a modest rally on 1.3600, while USD-JPY was underpinned by corporate demand and a rally via the JPY crosses. EUR positive news came after German Chancellor Merkel reached a coalition deal with the SPD, which was as-expected. The market also welcomed news that the PBoC plans to introduce a deposit insurance system and China will also lift certain foreign investment restrictions. AUD steadied ahead of 0.9100 on China, while Q3 construction work done came in at 2.7% versus a 0.5% forecast. Elsewhere, the NZ trade balanced came in at a narrower N$ 168 mln as exports and imports both beat expectations.

    [EUR, USD]
    EUR-USD continued to experience on going support on dips after yesterday's positive close. A bullish technical backdrop encouraged early buyers, while markets reacted positively to further signs that China is moving in the right direction to liberalise markets. After starting the session near 1.3550 it took off from the 1.3570 area and hit intra-day highs at 1.3599 on news of the German coalition deal. However, into the Asian close commercial interest picked up near the highs and the EUR edged back to 1.3570 into the European open. Thin trading conditions today could see stops targeted above 1.3600.

    [USD, JPY]
    USD-JPY was underpinned on dips as short term fund demand and importer bids put a floor in place from the 101.20 area in early trade. It got positive guidance from EUR-JPY's rally out of 137.50 to 138.15 as the EUR benefited on the German coalition news. There was also option related activity that went through amid more expiry congestion from 101.75 to 102.00 in the coming sessions, leaving bias on the upper end of the recent range. BoJ board member Shirai also reiterated he BoJ's easing bias and its willingness to ease gain if needed.

    [GBP, USD]
    Cable pushed back over 1.6200 on Tuesday. Intra-day accounts that were playing the range bought ahead of support at 1.6130, which limited EUR-GBP's small rally into 0.8400. The cross should still meet demand on dips related to month-end and bids are anticipated from 0.8350 to 0.8330 in the coming sessions. Cable looks poised for a period of sideways action while resistance at 1.6250-60 holds, though the underlying trend is still looking good for another topside test. The focus today will come from U.K. Q3 GDP data.

    [USD, CHF]
    CHF was narrowly mixed. USD-CHF headed back into the 0.9055-60 region, which limited EUR-CHF's ability to rally following a failed attempt to clear offers from 1.2330 on Tuesday. Ranges remained narrow, but local names saw last Friday's EUR-CHF move to two-week lows of 1.2285 as a buying opportunity, leaving 1.2280 stops intact. We expect more of the same today on dips amid caution after SNB recently warning that it would defend the CHF cap with unlimited funds if needed.

    [USD, CAD]
    USD-CAD rallied out of 1.0520 on its way to highs of 1.0558 on Tuesday, where it was said to have run into a band of offers up to 1.0570. Barrier options remain in place at 1.0600, and will likely be defended into today's reported expiry. In the meantime, range trade looks set to continue, with corporate bids seen from 1.0520 to 1.0500.

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