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By XE Market Analysis October 1, 2013 2:56 am
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    XE Market Analysis: Europe - Oct 01, 2013

    The market reaction has so far been muted to news that the U.S. government is heading for shutdown after a compromise was not struck on a government spending bill or a Continuing Resolution. Helping offset were a set of encouraging data out of both Japan and Australia. The USD is near to net unchanged levels versus yesterday's London closing levels against most currencies and stocks were mostly up in Asia. One exception was GBP, which has taken on a newly rediscovered role as safe haven currency, thanks to the recent economic revival and fading dovishness of BoEspeak. Sterling rose to new nine-month highs against both the dollar and euro, witch GBP-USD making 1.6247 and EUR-GBP sinking to 0.8333. EUR-USD, meanwhile, was, at 1.3542 just ahead of the London open, 10 pips ups on its Monday London closing level. USD-JPY was about 10 pips under its London closing level, at 98.17 bid, while EUR-JPY was also bear to net unchanged levels near 133.00. AUD-USD popped higher, to a five-day peak of 0.9401, following encouraging data out of Australia and Japan, which offset a downward revision in official China PMI data for September.

    [EUR, USD]
    EUR-USD is firmer and the odds for further gains appear good in light of the U.S. government shutdown situation, and concerns about the important debt ceiling showdown later in the month will go badly. Resistance is pegged at 1.3550 and 1.3565-68, which encompasses recent consolidation highs. A break above the latter would suggest potential for a move to 1.3750.

    [USD, JPY]
    USD-JPY remains in a bear-trend, with a tend resistance line at 98.65, and with the 50-day moving average just above here at 98.67. Trend line support comes in at 97.20, where we think the market is biased to. Japanese data were solid today, and follows the rise in CPI last week, which pointed to end to the yen's roles as a funding currency for carry trades. The BoJ's quarterly Tankan index for big manufacturers rose to 12 in September, the best since 2007, from 4 in June, which was about twice as strong as anticipated by both ourselves and markets. Japanese PM Abe is also due to unveil the government's new stimulus package later. Abe earlier confirmed the planned sales tax increase to 8% from 5%, to be implemented next April.

    [GBP, USD]
    Sterling rose to new nine-month highs against both the dollar and euro, witch GBP-USD making 1.6247 and EUR-GBP sinking to 0.8333. The break of barrier options and trigger of stop orders through 1.6200 added fuel to the move. GBP has taken on a newly rediscovered role as safe haven currency, thanks to the recent economic revival and fading dovishness of BoEspeak. U.K. data releases this week, particularly the September PMI reports, should continued to point to a strong pace of economic revival.

    [USD, CHF]
    EUR-CHF has continued to trend lower, driven by the political uncertainty in the U.S. that is feeding a Swiss currency supportive risk-off theme in global markets. The cross has descended from 1.2400-plus levels two weeks ago and has traded to a low of 1.2215 today. Still above the SNB no-go zone near 1.2000, but the speculative part of the market will be reluctant to establish short positions through 1.2200. SNB's Jordan reaffirmed last week that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals. Should risk aversion continue, we would expect EUR-CHF to remain heavy and trade toward 1.2000, though, and similar to previous episodes since the currency limit peg was introduced in September 2011, we would fully expect the SNB to make a successful intervention to cap Swiss currency strength.

    [USD, CAD]
    USD-CAD again found buyers around 1.0300, basing at 1.0297 in London, before inching back toward 1.0315. The pairing managed a meager 20 point gap up over 1.0320 at the Asian open, though range trade has been persistent. Canada GDP rebounded 0.6% in July, better than expected (median +0.5%) following the 0.5% drop in June, which took USD-CAD to 1.0275 lows. Inside of 1.0270 and 1.0340, two-way flows should continue, and the pairing headed back toward 1.0300 in light afternoon trade.

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