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By XE Market Analysis September 6, 2013 1:40 am
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    XE Market Analysis: Europe - Sep 06, 2013

    The dollar held on to the large majority of Thursday's gains as market participants turned their attention to today's U.S. NFP data. Thursday's U.S. releases reinforced expectations that the Fed on are track to taper policy later this month, which saw a rise in U.S. yields and 10-year Treasuries touched 3% and other global bond yields also rose. Both the cash yield on the 10-year Bund and Gilt spiked to fresh cycle highs above 2% and 3%, respectively, while in Asia a similar theme was evident for Australia bonds. The impact on FX was muted. The underlying dollar bid left EUR just a short distance from 1.3100 option barriers, while USD-JPY consolidated close to the 100.00 area.

    [EUR, USD]
    EUR-USD continues to find a modicum of support on dips. Outstanding option barriers at 1.3100 and light position adjustment boosted the pair back to the 1.3140 area during the Asia session. However, yesterday's break below long-term support and the close under 1.3150 should encourage selling pressure on upticks. Better sellers are still more likely into 1.3200 and above though, but the EUR outlook in the near-term will be solely dependent on today's key U.S. release. This will set the tone into the middle of the month when the Fed policy decision is due. On Thursday, ECB's Draghi reiterated his dovish stance, but failed to keep market rates down.

    [USD, JPY]
    USD-JPY posted an early move to fresh trend highs of 100.24 and then reversed course. Selling picked up in line with the Nikkei as speculation circulated that Tokyo may not get the 2020 Olympics after all, which had fueled optimism earlier in the weekend. Profit taking picked up and the downturn forced a 99.70 pullback low, where good bids re-emerged, and kept the pair off trailing stops left under 99.50. The balance of risk in the near-term is still skewed to higher levels as the dollar looks set to extend the underlying bid.

    [GBP, USD]
    Cable regain some its equilibrium around 1.5600 following yesterday's choppy action. After the BoE left policy unchanged it rallied out of 1.5610 to 1.5665, which was widely expected. However, a dovish ECB weighed on the euro, and a generally firmer dollar on the back of better U.S. data saw Cable fall to the 1.5575 area. The downside in GBP though is very limited as due to better U.K. fundamentals and the lack of BoE response to higher market rates. This has kept GBP elevated against several currencies.

    [USD, CHF]
    EUR-CHF traded at a three-week high on heavy Swiss order flow, leaving it close to 1.2400 resistance zone. The shift in the CHF came on a plethora of factors, exacerbated by thin trading conditions. Aiding the risk backdrop was the reduced threat of a wider military conflict in Syria as the U.S. look set for limited action. U.S. yields are also on the rise and the rout in emerging markets has eased on signs that emerging market countries will discuss coordinated policies at the G20. Against this backdrop USD-CHF traded into the 0.9450 region and held steady ahead of U.S. NFP data.

    [USD, CAD]
    USD-CAD held steady within the 1.0475 and 1.0500 range, which held for most of Thursday's session. The pairing idled between bids at 1.0470 and offers from 1.0520, and consolidation continued ahead of today's twin U.S/Canada employment reports. There are reportedly a build up of spec bids from 1.0470, which are noted ahead of corporate support from 1.0450. A long-term bullish trade was also touted around from the 1.0440 area on Thursday and this could encourage further demand on any fresh sell-interest. Longs are still holding out hope for an eventual move on the 1.0600 area, but it has been a frustrating trade. Corporate activity, option related hedging and chart resistance had generally capped moves over 1.0550.

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