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By XE Market Analysis September 12, 2013 3:33 am
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    XE Market Analysis: Europe - Sep 12, 2013

    The dollar consolidated losses in Asia, leaving EUR over 1.3300 and Cable above 1.5800. USD-JPY continued to disappoint on the topside and headed through support at 99.50 to trade at 99.40 lows. AUD was the standout mover. It edged out highs just over 0.9350 and then plunged to 0.9250 as Australia August jobs fell 10.8k, which was much weaker than expected and saw the unemployment rate rise a notch to 5.8%. There was a steady policy hand from the RBNZ, which left rates unchanged at 2.5% as expected, but NZD rose after it said rate hikes are likely to be required next year. BoK also left rates unchanged at 2.5%. There was slightly disappointing Japan core machinery orders data, which was flat on the month and up 6.5% y/y.

    [EUR, USD]
    EUR-USD maintained a firmer tone. It started the session above 1.3300 and edged out highs of 1.3325 amid a softer dollar tone as U.S. yields eased. Upside momentum remained limited though amid reports of decent supply from Asian commercial accounts. EUR-JPY heaviness was a cap on prices, though EUR-AUD surged from 1.4235 to 1.4395 and kept the downside underpinned throughout. Short term bias for EUR may stay with the topside on slightly better momentum studies. However, we doubt there is a big commitment to add fresh positions with the focus now on the FOMC outcome.

    [USD, JPY]
    USD-JPY saw limited upside after it was unable to hold on to the 100 handle during Wednesday's session. The weak close saw intra-day accounts favour selling into strength and there was negative guidance from yesterday's downturn in U.S. yields. There was speculation in early trade that PM Abe would increase the sales tax to 8% in April as scheduled, though Cabinet Secretary Suga that was no truth in the talk. USD-JPY headed into 99.50-60 support and broke to 99.40 lows. There was significant pressure from AUD-JPY, which fell from over 93.00 to 92.00 after the weak Australia jobs data. The slightly disappointing Japan core machinery number was shrugged off for the most part, though it probably didn't help the overall tone today, which was corrective.

    [GBP, USD]
    Cable's upside may be limited regardless of what Carney says or doesn't say today. There are long-term option barriers that are noted from 1.5850 layered up to 1.6000. Sources also tip a market that is now very long of gamma over 1.5800 as the protracted GBP rally led to heavy topside hedging over the last few weeks. Good size 1.5800 strikes rolling off this Friday and option names could use movement over 1.5800 as a hedging opportunity.

    [USD, CHF]
    CHF may have room to rally as recent positioning is cut back ahead of key event risks. The pending FOMC outcome may increase market nervousness in the early part of next week and the situation in Syria is still an unknown as the timeline on Russia's proposed chemical weapons handover is worked out. The SNB is also due to meet next Thursday, where policy should remain unchanged. Appetite to sell the CHF lifted EUR-CHF to 1.2415 overnight and it may raise the risk of profit taking as we move towards resistance at 1.2435 to 1.2450. Market positioning is also overstretched amid bank flow reports that suggest CHF was one of the most heavily sold currencies over the last week as Eurozone data picked up and Middle East tensions eased.

    [USD, CAD]
    USD-CAD maintained downside pressure and edged out lows of 1.306 in Asia. Light buying interest came back in during the European time zone. The USD picked up a touch and this lifted it back through 1.0320. A better risk backdrop could leave USD-CAD vulnerable if support at 1.0300 gives way. Stop and reverse positions are building through 1.0290, which is just under August-15 lows of 1.0294. Selling into strength is favoured in the short-term.

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