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By XE Market Analysis September 5, 2013 2:08 am
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    XE Market Analysis: Europe - Sep 05, 2013

    The dollar held steady in Asia. EUR and GBP met light selling on upticks as focus turned to central bank policy decisions from the ECB and BoE later today. The lead from regional equity markets was fairly mixed, though overall sentiment was underpinned following the positive close on Wall Street. USD-JPY maintained a firm tone throughout and traded into 100.00 as funds position for further upside in light of the U.S. and BoJ policy outlook. The BoJ left policy unchanged today as expected and upgraded the economic assessment. It reduces the near-term likelihood of policy easing. However, there are indications that the BoJ is prepared to ease again next year when the sales tax hike is introduced. AUD traded in a narrow range just under 0.9200 ahead of key data and event risks, which include this weekend's federal election. Capping the upside was worse than expected trade data.

    [EUR, USD]
    EUR-USD came under pressure after it started the session above 1.3200. It could not sustain Wednesday's rally and edged back through 1.3170 by the time European accounts entered the market. There were light sovereign flows on the way down. Most of the action was a function of underlying firmness in U.S. yields due to recent U.S. data and the reduced threat of Syrian action. Into the ECB meeting near-term risk will remain on the downside as Draghi is still expected to leave the door open for further easing if needed, even though this is now looking less likely due to recent Eurozone data releases. Progress on the downside will be dependent on how EUR performs around long term moving averages under 1.3150, which held earlier in the week.

    [USD, JPY]
    USD-JPY held firm throughout the session and rallied out of 99.65 in early trade to within two pips of 100.00 just ahead of the Tokyo close. Buyers of USD-JPY came mostly from interbank names and shorter term funds that were positioned for a stop hunt through 100.00. Offers from exporters and option names capped for a time, but corrective action is very shallow and the risk of an extended rally looks high. The BoJ left policy unchanged and reiterated that it would be prepared to ease again if needed. However, the upgrade in the economic assessment reduces the likelihood of further easing this year. BoJ Governor Kuroda has indicated his willingness to ease again next year in order to absorb the impact from the sales tax hike.

    [GBP, USD]
    Cable is trading close to 1.5600. Cable headed to 1.5647 highs into the London close amid a combination of EUR-GBP heaviness and stop loss activity as light dollar selling went through. Follow through activity was contained though ahead of today's policy outcomes from the BoE and ECB. Both central banks are expected to keep policy unchanged. The BoE is likely to be a non-event for the market, with no statement expected. There may be a kneejerk dip, but we expect the underlying uptrend to fuel GBP dip buying in light of the better than expected U.K. data. The 1.5500 region has become a near-term pivot point for position traders, while on the topside mid-June highs around 1.5750 still stand in the way of a much deeper push higher.

    [USD, CHF]
    The pick up in risk appetite on Wednesday enabled EUR-CHF to break above 1.2350 and extend to the 1.2385 region. A strong rally across emerging markets also weighed on the CHF, but the major influence was underlying dollar strength. USD-CHF rallied out of the 0.9350-60 area overnight and threatened resistance at 0.9400. A sustained break of range could help EUR-CHF to the 1.2400 area, though where the cross ends up intra-day is going to be impacted by the ECB policy statement.

    [USD, CAD]
    USD-CAD steadied under the 1.0500 area as bids at 1.0470 held the downside on Wednesday. After fading towards 1.0475 it headed back towards the 1.0500 area, leaving the range bound trading theme intact. The BoC announcement was a non-event for USD-CAD and for the most part performance across risk assets and the USD influenced.

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