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By XE Market Analysis October 2, 2013 2:48 am
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    XE Market Analysis: Europe - Oct 02, 2013

    The dollar held steady in Asia after it recovered from trend lows in N.Y. as the U.S. government shutdown did not have a significant impact on U.S. markets. It is widely though that the shutdown has effectively eliminated any risk of an October Fed policy change. The dollar upside should remain limited in the very near-term as the looming debt ceiling is a potential risk. Against this backdrop EUR maintained a stable tone ahead of 1.3500, while Cable corrected to 1.6165 and USD-JPY headed back into 97.70. Japanese markets were focused on yesterday's speech from PM Abe after U.S. market were surprisingly stable. AUD-USD fell to the 0.9365 area after a wider than expected Australia trade deficit and weak building approvals data.

    [EUR, USD]
    EUR-USD came under a bit of pressure in early Asia after it topped out at eight month highs at 1.3589 on Tuesday. U.S. markets were fairly relaxed over the U.S. government shutdown as market participants believe that it could increase the likelihood that the U.S. will reach a deal on the debt ceiling. EUR moved into the 1.3500-10, where very good support put a floor in place and it was supportive over the Asia afternoon. There is still strong buying interest just under 1.3500 and into the 1.3450-60 area. Fed policy expectations could also weigh on the USD ahead and longs are still in play with a potential test of 2013 highs of 1.3711 if Italy can navigate through the latest political upheaval.

    [USD, JPY]
    USD-JPY maintained its bearish credentials, with Japanese markets underperforming its Asian counterparts. Domestic players focused on yesterday's speech from PM Abe, who confirmed that the sales tax would be hiked from 5% to 8% next year, which disappointed those looking for a more incremental move. USD-JPY fell from the 98.00 area and extended to 97.70. The pace of the move lower was absorbed to a degree by decent offshore bids and dollar support via the other FX majors. There are buyers into 97.50 and 97.20-30 from institutional investors and quasi-official bids were also tipped. On the topside, the trend resistance line at 98.65 and the 50-dma just above should continue to cap in the interim.

    [GBP, USD]
    Cable maintained a more corrective tone overnight after it pulled back from Tuesday's trend highs at 1.6261. After stops and barrier options were extinguished on the way up dollar buying picked up. The better U.S. risk appetite took some wind out of sterling's sails, and while technically still looking at further gains, it may take a breather for now. Since Thursday, cable has rallied over 250 points, which may invite some near term profit taking. Buyers are fairly steady though between 1.6160 and 1.6130.

    [USD, CHF]
    EUR-CHF is stable around 1.2250 after it found support ahead of 1.2200 on Tuesday, and managed a run up toward 1.2270 in N.Y. Risk appetite perversely returned after the U.S. government shut down, resulting in higher stocks, and a firmer dollar. The thinking in the market is that a government shutdown will accelerate negotiations to avoid going over the U.S. fiscal cliff. USD-CHF has also stabilised over 0.9050 after it found a strong bid under 0.9000 on during Tuesday's London morning.

    [USD, CAD]
    USD-CAD edged up through 1.0350 after it found good support ahead of the 1.0300 mark during Tuesday's N.Y. session. Persistent oil price weakness, and the slide in gold prices didn't help the CAD. However, stock markets have stabilised and this could limit the USD-CAD upside, along with good standing offers from 1.0375 to 1.0400.

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