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By XE Market Analysis September 20, 2013 2:11 am
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    XE Market Analysis: Europe - Sep 20, 2013

    Asian markets ended the week on a quiet footing as consolidation set in after the heavy volumes seen over the course of the week. The dollar and yen consolidated softer levels, although both currencies made up a little bit of ground from Thursday's base as profit taking set in. It was a similar story across equity and commodity markets as risk assets faded from the highs. There were no fresh developments. BoJ Governor Kuroda reiterated the easy policy bias when he maintained that the BoJ would continue with QE for as long as needed in order to achieve the 2% inflation target and hoped to offset the upward pressure on JGB yields.

    [EUR, USD]
    EUR-USD held firmly above the 1.3500 level. During the Asian session ranges were very narrow though following yesterday's move up to trend highs of 1.3568. In N.Y. it ran into selling pressure near 1.3560 and edged out 1.3510 lows. There was very good support around those levels and more strong bids are seen at 1.3510, into 1.3470 and 1.3450-60. The bias for EUR remains with higher levels and after Fed sidestepped QE it may have left the opportunity for a successful run on 2013 highs just over 1.3700. We suspect that this is the target that several large players are looking for.

    [USD, JPY]
    USD-JPY and EUR-JPY consolidated Thursday sharp rally. There was very heavy flows that went back into leverage positions following the Fed inaction. In Asia, USD-JPY edged out highs just over 99.50, but follow through was lacking and it drifted back into the 99.25 region. EUR-JPY pulled back from 134.75 to 134.25 as the 135.00 level capped on Thursday, which sparked speculation of an outstanding option barrier. JPY could drift higher intra-day given the pace of yesterday's losses. Equity markets have also stalled as profit taking goes through ahead of the weekend. Note, there is also a potential risk that if U.S. data improves Fed taper expectations will rise again and this could choke off the equity market upswing and dampen leverage positioning.

    [GBP, USD]
    Cable has consolidated gains. It is still holding relatively firm ahead of good support at 1.6000 after yesterday's unexpected drop in U.K. retail sales worked off some of the froth on the topside. Cable now stands at 1.6040 compared with trend highs near 1.6160, which were noted in the wake of the Fed policy outcome. Buyers of sterling are mostly from macro funds and reserve managers, though this is being offset to a degree by leverage accounts booking profit. After the Fed outcome and the September BoE minutes any corrections should be seen as buying opportunities and longs are positioned for a move on 2013 highs over 1.6300.

    [USD, CHF]
    The CHF is trading on a firmer footing despite the resurgence in risk appetite in the wake of Fed policy inaction. USD-CHF is marking time close to 0.9100, which is near yesterday's 0.9090 trend lows, and EUR-CHF trades around 1.2320 versus yesterday's N.Y. lows of 1.2310. The upturn in the CHF is being pinned on massive CHF-JPY demand as Japanese accounts piled into leverage positions. The cross surged to multi-year highs of 109.41 and maintained a firm tone in Asia near 109.00.

    [USD, CAD]
    USD-CAD is on the front foot after it rebounded out of three-months near 1.0180 on Thursday. After basing at 1.0180 it moved higher on solid corporate demand and real money hedging activity. The pairing made its way steadily higher, eventually peaking over 1.0260 on Thursday, and then extended through 1.0285 in Asia. Risk taking levels eased back from Wednesday's post-Fed spike, which may have weighed on the CAD some. USD-CAD should run into natural supply into 1.0300. Buyers are seen into 1.0235-40 and 1.0220 to 1.0200 on an intra-day basis.

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