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By XE Market Analysis October 28, 2013 4:41 am
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    XE Market Analysis: Europe - Oct 28, 2013

    The dollar consolidated overnight just ahead of recent trend lows, leaving EUR near 1.3800, Cable just under 1.6200 and USD-JPY at 97.50. The macro leads were far and far between in Asia and the focus is already on Wednesday's FOMC decision, which could prove to be an non event amid the U.S. government shutdown earlier in the month. In Europe, there may be small price chop over U.K. retail sales data from CBI, while Italian business confidence is also due. In the U.S. session the impetus will come from earnings results, with Apple due amongst others. From a technical perspective appetite to sell the dollar on upticks is still the main driver, though both EUR and Cable looked a little toppish last week ahead of 1.3850 and 1.6260, respectively. USD-JPY also rebounded out of 96.90 and has benefited from retail investors demand for the JPY crosses.

    [EUR, USD]
    EUR-USD started the session close to 1.3800. However, it was unable to retest last week's top near 1.3830 amid an overhang of sell-orders that are still protecting outstanding barriers at 1.3850. The downside was underpinned throughout though due to a bullish technical backdrop and there was positive directional guidance from EUR-JPY and EUR-CHF, which benefited from equity market gains.

    [USD, JPY]
    USD-JPY moved up from 97.40 to 97.75 in early trade. Tensions between Japan and China over the Senkaku Islands picked up late last week and this fed a small move higher today after comments from PM Abe, which suggested a harder stance from Japan. However, follow through on the USD-JPY upside was limited due to underlying dollar weakness and good corporate hedging on dollar strength. The JPY crosses were supported by positive risk appetite, which kept USD-JPY's downside limited throughout and this should drive early action in Europe.

    [GBP, USD]
    Cable is relatively close to last Friday's London close near 1.6175. Last week, despite the bullish technical backdrop offers at 1.6250-60 held the topside for three consecutive sessions, which was also the case late September. The lack of upside progress has fuelled speculation of option barriers at 1.6275, as well as the already confirmed 1.6300 structures. There is conjecture that these may be one-month barriers that are due to run until late this week.

    [USD, CHF]
    The USD-CHF recovery stalled at 0.8965 on Friday and it drifted back towards 0.8930 overnight. The bulk of the heavy lifting in USD-CHF from under 0.8900 last week came on Swiss name demand. USD-CHF support has also elevated EUR-CHF, which is trading around the 1.2330 area after falling to 1.2280 in the latter part of the last week. A rise in risk appetite has weighed on the CHF, but USD-CHF has been the main driver over the last week or so and this could potentially cap upside momentum given the underlying dollar trend.

    [USD, CAD]
    USD-CAD is holding firm just short of 1.0450 after it powered higher on Friday, rallying from 1.0410 to 1.0461 highs. Canadian names have faded the move, which we think was probably corporate related as USD-CAD has not traded at current levels since early September. The underlying trend is skewed to a 1.0500 test in the near-term, though options barriers are likely to be a feature on upticks.

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