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By XE Market Analysis October 18, 2013 2:18 am
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    XE Market Analysis: Europe - Oct 18, 2013

    The dollar was still pegged back following Thursday's deep losses after Congress extended the debt limit. In addition, the greenback was weakened by concerns that the recent political wrangling could delay further the Fed's willingness to taper. The USD-index headed under 80.00, which lifted EUR to 1.3680, and in Asia it traded near 1.3660. USD-JPY found a modicum of support from thick Japanese bids from 96.80 to 96.50 following a correction from 99.00. Today's Asian session was all about China data releases, which came in on the firmer side of expectations. China Q3 GDP reached 7.8%, industrial output came in at 10.2% y/y and retail sales rose 13.5% y/y. This boosted risk appetite in the region, but movement was still well contained. Investors are on the sideline to a degree as the U.S. catches up with postponed U.S. data releases. Meanwhile, RBA Governor Stevens talked up the benefits of a softer AUD, which limited the upside over 0.9630.

    [EUR, USD]
    EUR-USD maintained a bid tone following Thursday's deep dollar losses. It rose from 1.3675 back into yesterday's highs around 1.3680 in early trade, where a wall of very strong offers capped further gains. These are thought to be related to outstanding option barriers and a series of resistance levels from 1.3700 and above. This saw EUR drift back to 1.3660, though the downside is well support now from 1.3640-50 and bids are layered back into 1.3600 as short term account position for further upside.

    [USD, JPY]
    USD-JPY was stuck to bottom of the range, where thick Japanese bids absorbed dollar losses on Thursday following the correction from 99.00 to 97.75. We think progress will remain slow while October-10 lows at 97.60 and bids at 97.50 remain intact. A break of 97.50 would embolden dollar sellers. However, the option maturity calendar points to a slow grind on the downside rather than deep losses. There are several strikes rolling off between 98.00 and 97.00, which may encourage gamma trading on dips. Dollar buyers today included Japanese importers, which lifted it out of 97.85 to 98.15, but underlying dollar weakness continued to cap the topside. The JPY crosses were underpinned though, with EUR-JPY buoyant near 134.00 after it broke to 134.10 highs in early trade. AUD-JPY also traded into 94.50 following China data releases.

    [GBP, USD]
    Cable held firm after it cleared 1.6100 and extended just above 1.6170 on Thursday amid general dollar weakness. Very large option expiries at 1.6000 and 1.6050 reinforced the support under Cable, along with heavy demand for topside strikes at 1.6200 to 1.6225 for the first week of November. There is more strike congestion rolling off today, while underlying dollar weakness should also keep bias with the topside. Cable has now retraced more than 50% of the correction from 1.6260 trend highs down to yesterday's base at 1.5995, which should bode well for further gains. Note, there is resistance at 1.6180 and offers into 1.6200 that could slow the move.

    [USD, CHF]
    EUR-CHF found support on dips on Thursday and headed back to the 1.2340-45 region by the Asia open. EUR-USD's bid tone and very good support from local names lifted the cross, though momentum was limited by USD-CHF heaviness just in front of 0.9000. Equity markets in Asia rose overnight, but we still think markets will maintain an element of caution ahead of key U.S. data releases, which were postponed over the course of the government shutdown. These will start to be released from next week. What is clear though is that Fed taper has been pushed back further and this will limit the dollar upside in the near-term. USD-CHF offers start from 0.9060 and are now fairly heavy across the 0.9100 zone.

    [USD, CAD]
    USD-CAD traded on the 1.02 handle for the first time Since October 7 on Thursday, basing at 1.0281. Very good support is expected into the 1.0270 level, with large stops reported at 1.0250. The temporary fix in Washington helped risk and CAD sentiment overall, though a lack of movement through 1.0270 may prompt some near-term short covering. USD-CAD tried to reclaim 1.0300 overnight, but so far is struggling due to underlying dollar heaviness.

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