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By XE Market Analysis September 2, 2013 3:32 am
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    XE Market Analysis: Europe - Sep 02, 2013

    Sentiment was positive as the immediate risk of a U.S.-led military strike against Syria faded, while economic data was also positive. U.S. President Obama decided to put the Syrian issue to vote in Congress when it reconvenes on September 9th. However, there was no appetite to reduce dollar longs in Asia. U.S. markets are closed for a long weekend, while there is a heavy data calendar to digest this week, along with the ECB policy outcome, the G20 and U.S. NFP data. Global markets will take encouragement from China manufacturing PMI data though. The final reading from HSBC came in at 50.1 and the official China PMI release hit a 16-month high of 51.00. Meanwhile, Japan's Q2 capex was unchanged y/y after the 3.9% drop in Q1 and Australia building approvals surged 10.8% m/m, which was more than double market expectations.

    [EUR, USD]
    EUR-USD started the session on firmer footing around 1.3230. However, it could not sustain higher levels amid EUR-AUD supply, along with comments from ECB's Coeure in the European press. He said the ECB was eyeing money market rates closely and aimed to keep them capped. EUR-USD fell back to the 1.3190 region, but was relatively stable throughout close to 1.3200. The near-term risk is on the EUR downside. Economic data out of the Eurozone late last week supported the ECB's easy policy stance and the technical backdrop also weakened. However, into the ECB policy decision later this week appetite for fresh positioning should be low.

    [USD, JPY]
    USD-JPY and the JPY crosses traded on a firm footing on positive risk appetite. The dollar pairing moved up from 98.20, through offers at 98.50-60 to trade at 98.67 highs. The best flows went through AUD-JPY and NZD-JPY, which benefited from marked improvement in conditions in China, along with positive domestic data releases. The former jumped from the 87.35 region and carved out highs just over 88.50 and the latter rallied to 76.70 from under the 76.00 level. USD-JPY will eye a push on the 99.00 region, where offers have capped for just over a week.

    [GBP, USD]
    Cable benefited from a rise in risk appetite in Asia, which boosted demand for GBP-JPY. News that Verizon and Vodafone finally reached an agreement for GBP 130 bln may lead to supportive GBP demand, although it is widely thought that any flows that were needed to cover the widely reported deal have probably gone through now. Negotiations have been on-going for many months. Nevertheless, Cable does look as if it has found a short term base near the 1.5500 region and with U.K. fundamentals improving there is likely to be more long-term demand for GBP on dips.

    [USD, CHF]
    EUR-CHF is drifting higher on risk appetite and comments from SNB's Jordan. He said that the CHF cap is still important as sudden strengthening cannot be ruled out in the current environment. Jordan expected Swiss inflation to remain low in the coming years and expansive policy was justified. Jordan said that SNB had the option of draining liquidity in the case of any inflation risk. EUR-CHF edged up from 1.2300 and is trading close to the 1.2325 area. Note, in recent sessions it has struggled to clear offers between 1.2330 and 1.2350.

    [USD, CAD]
    USD-CAD edged higher. The dollar is still trading on the firmer side for the most part, which has enabled USD-CAD to maintain the 1.05 handle. It traded just above 1.0540 in Asia and a subsequent pullback to the 1.0520 area by early Europe met a round of buying interest. From a technical perspective there is still scope for a sustained move on higher levels, though very good offers are still noted into the 1.0570 area related to outstanding option structures.

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