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By XE Market Analysis September 17, 2013 3:55 am
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    XE Market Analysis: Europe - Sep 17, 2013

    The FX majors consolidated overnight as the focus turns to Wednesday's FOMC policy outcome. Some form of tapering is priced in, as well as dovish forward guidance. The Larry Summers withdrawal from the Fed chair candidacy also raises the prospect of a Yellen appointment, which is viewed as more likely to result in a gradual withdrawal of policy stimulus. The dollar made up some of yesterday's lost ground, but in the absence of fresh leads short term accounts are keying off near-term technical studies. Both EUR and Cable are skewed in favour of dip buying after yesterday's run up to 1.3385 and 1.5963, respectively. USD-JPY's lack of sustained topside movement is also pointing towards a test of levels under 98.50. However, ahead of Wednesday's Fed decision movement may narrow up. There is quite a bit of data to digest over the course of the day. In the Eurozone there is German ZEW, Eurozone current account and trade data, along with U.K. CPI.

    [EUR, USD]
    EUR-USD was flat throughout the Asia session after it pulled back from the 1.3385 area on Monday. There were very strong offers ahead of 1.3400, which raised speculation of option barrier exposure. The dollar rebounded as U.S. yields recovered some of their lost ground. In Asia, there was no appetite in either direction. Bids from 1.3320 put a floor in place and the topside was limited to 1.3340. There may be another mild attempt on higher levels, but the lack of progress on 1.3400 may mark the top of the range given the proximity to the FOMC outcome, where a small taper is priced in.

    [USD, JPY]
    USD-JPY recouped all of the losses seen during Monday's session. Tokyo participants returned from the long weekend and were light buyers from the 99.00-05 region. The more supportive U.S. yield backdrop was a positive driver and it edged out highs around 99.35, which effectively closed the gap from Monday's Asia Pacific open. There were a wall of sellers once this level printed and the pair drifted back to 99.20 by the Tokyo close. Overall, like the other FX majors there was a lack of interest to add new positions. USD-JPY's inability to sustain 100.00 last week could leave it more vulnerable to a downside test in the next 24 hours or so, though the Fed outcome is likely to result in fairly narrow ranges intra-day.

    [GBP, USD]
    Cable steadied ahead of 1.5900 after it pulled back from just over 1.5960 on Monday. Recent U.K. data strength and the soft patch of U.S. data into the FOMC outcome raises the potential for more dollar weakness. However, Cable is looking toppish ahead of the key 1.6000 level and there may be a period of consolidation before further topside moves are sustained. There are long-standing barriers at 1.6000 and key technical resistance between 1.6025 and 1.6050, inclusive of more option exposure.

    [USD, CHF]
    EUR-CHF was unable to sustain higher levels, leaving it close to 1.2350, while USD-CHF continued to trade near 0.9250. Equity markets have turned corrective as yesterday's rally ran its course and this worked against the topside in Asia. Markets remain in a holding pattern and this theme is likely to continue in the very near-term. After Wednesday's Fed decision there is Thursday's SNB meeting to digest. The SNB are expected to leave policy unchanged, including the EUR-CHF lower limit at 1.2000.

    [USD, CAD]
    USD-CAD is stable near the 1.0320-30 area. The downside was supported on Monday by real money accounts. After gapping down to 1.0283 it recovered 1.0300 and extended to the 1.0320 by the North American morning session. The move into the 1.0330 region reflected a dollar recovery elsewhere. Ranges are likely to remain tight into Wednesday's Fed decision. Offers are tipped towards 1.0340-50, but the downside looks supported now from 1.0280-90.

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