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By XE Market Analysis September 25, 2013 3:23 am
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    XE Market Analysis: Europe - Sep 25, 2013

    The G10 FX continue to trade narrow ranges in another relatively subdued session. The dollar was supported against EUR and GBP on position adjustment after most currencies retraced around half of the recent gains seen in the wake of last week's Fed policy decision. JPY was supported on risk reduction as Wall Street closed in negative territory for the fourth session and the Asian market remained mixed on Fed uncertainty and the looming U.S. debt ceiling. This weighed on the commodity bloc currencies, leaving AUD near 0.9370, while USD-CAD settled around 1.0300 and NZD-USD headed to 0.8220. It was a limited session for fundamental developments. The RBA gave a positive assessment of the banking sector, which boosted the big four banking stocks and helped the ASX higher. The NZ trade deficit widened to N$ 1.191 bln from N$771 mln, which was the biggest deficit in six years.

    [EUR, USD]
    EUR-USD added to Tuesday's losses and fell from 1.3480 towards the 1.3460 region. Japanese interest to sell EUR didn't help and there was negative guidance from movement in the commodity bloc and emerging Asia. Losses on the downside were limited by decent chart support into 1.3450, though a break through these levels and a full retracement of the post-Fed move back to 1.3400-1.3380 seems likely. The market will remain sensitive to comments from ECB officials, which has opened up the possibility of a long-term tender later this year if liquidity is compromised as banks repay previous funds.

    [USD, JPY]
    USD-JPY and the JPY crosses remained on the heavier side amid equity market weakness. USD-JPY edged into the 98.50 area, but the downside was kept in check by Japanese importer demand and there is persistent talk that institutional investors remain good buyers on dips. However, the upside was limited to 98.80 and there are more offers from 99.00 and above from exporters and short term speculative names. EUR-JPY remained pressured under 133.00 as EUR was weighed by yesterday's dovish sounding comments from ECB officials, which raises the likelihood of another long term tender later in the year.

    [GBP, USD]
    Cable edged out of the 1.5955-60 area on Tuesday as large bids held and it gravitated back towards the 1.6000, where option expiry congestion is noted this week. EUR-GBP has been supported on dips despite persistent talk of supply related to farming subsidies. However, GBP was due a period of corrective action after the excesses in recent weeks and could add to losses today on U.K. data weakness. CBI distributive trade is of interest after last week's U.K. retail sales miss, which was the catalyst for the current period of corrective action in Cable.

    [USD, CHF]
    EUR-CHF has not seen any significant follow through on the downside despite the close under the 200-dma on Monday. Macro funds were good buyers on dips on Tuesday, along with local names and this has put a floor in place, though equally there is no interest to chase higher levels as EUR struggles to sustain altitude. It is notable that EUR-CHF has not experienced any sustained period of movement under the 200-dma since April and it was interesting that Monday's break lower brought SNB's Jordan to the wires. Specs are unlikely to aggressively test the downside on louder central bank rhetoric given the SNB's track record in keeping EUR-CHF elevated.

    [USD, CAD]
    USD-CAD gravitated back to the 1.0300 area after it found buyers at 1.0270 on Tuesday. Equity markets continued to struggle overnight and this weighed on the commodity bloc. There is speculation that USD-CAD's tight range near 1.0300 may be a consequence of option expiries, which suggests that the current narrow rangebound theme will continue today. There are very few leads elsewhere though. The FX majors are all experiencing a period of consolidation after last week's Fed inaction.

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