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By XE Market Analysis October 31, 2013 2:39 am
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    XE Market Analysis: Europe - Oct 31, 2013

    The dollar maintained the month-end bid after yesterday's FOMC policy statement boosted yields. The statement was less dovish than most market participants had expected, which reinforced the short term dollar tone. Into the Fed meeting dollar buying was notable and weaker technical studies for EUR, GBP and AUD reinforced this tone. Cable threatened 1.6000 and downside movement was reinforced after the GfK consumer confidence index came in at -11 from -10 in September, which was the first fall in six months. AUD-USD found support on dips after much stronger than expected building approvals data. The BoJ left policy unchanged as expected and this kept USD-JPY rangebound close to the 98.50 region. At the Asia Pacific open RBNZ left rates unchanged at 2.5% and Governor Wheeler maintained that it will eventually raise rates next year. NZ October business confidence dipped to 53.2% from 54.1 previously. Meanwhile, the PBoC injected CNY 16 bln via a 14-day reverse repo.

    [EUR, USD]
    EUR-USD headed back below 1.3700 amid a build up of sellers into the 1.3735-40 region. The correction in EUR-USD was reinforced by EUR-JPY supply and long liquidation in EUR-AUD. There may be potential for short term dollar upside, with the door left ajar for Fed policy tapering in December, though this is not market consensus. As U.S. data is released from the government shutdown period the dollar tone may deteriorate again. Conjecture remains that EUR-USD could still trade higher in the coming weeks amid the Fed outlook and potential for Eurozone bank repatriation ahead of the ECB's asset quality review early next year.

    [USD, JPY]
    USD-JPY experienced narrow ranges. The BoJ left policy unchanged and there was very little market impact as this met expectations. There was further talk of heavy option expiry congestion for the second consecutive session, which influenced in a relatively quiet session. Movement into 98.50 and above met exporter selling and short term accounts playing the range, but equally the downside was underpinned from 98.30 and more bids are seen at 98.00-10 in the near-term. Japan manufacturing PMI hit the highest level in three-years in October at 54.2. Meanwhile, flow data revealed that Japanese investors were net buyers of foreign bonds and came as a Reuters poll said Japanese funds managers had up global stock-bond allocations, which underlined the recent firmness in the JPY crosses.

    [GBP, USD]
    Cable fell to 1.6000 in the aftermath of the FOMC, where buyers returned. It moved back into the 1.6040 area by the N.Y. close, but in Asia bias was skewed to lower levels. The first fall in GfK consumer confidence in six months reinforced growing expectations that the pace of the upturn in the U.K. economy may be moderating. It retested the 1.6010 area overnight, though very good demand continued to keep a floor in place.

    [USD, CHF]
    The CHF remained on the softer side as USD-CHF support kept EUR-CHF elevated. The dollar pairing rallied out of 0.8950 back over 0.9000 on the Fed statement and in Asia it met a persistent bid into 0.8990-00, leaving bias slightly in favour of topside moves. EUR-CHF pulled back from 1.2370 to 1.2335 by the Fed decision by USD-CHF kept it underpinned close to 1.2350, where it remained in Asian trade.

    [USD, CAD]
    USD-CAD continued to find resistance on upticks due to barrier option defense (Friday expiration of 1.0500's) and this limited the upside to 1.0497 after buyers lifted it from 1.0455 over the Fed decision. In Asia, buying interest was noted from 1.0475 and it probed the 1.0490 area over the Asia afternoon. If USD-CAD stays elevated in Europe then the 1.0500 level may give way in the North American session as it's likely that topside moves have already been hedged and it may be more costly to defend the topside rather than left it go higher.

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