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By XE Market Analysis September 27, 2013 3:17 am
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    XE Market Analysis: Europe - Sep 27, 2013

    Ranges were narrow among the FX majors since yesterday's London closing levels. The JPY posted modest across-the-board gains following news of the fastest acceleration in CPI inflation in nearly five years, a sign that re-inflationary policies are taking effect. USD-JPY was trading at 98.60 ahead of the London open, about 30 ticks below the London closing level of Thursday, and the EUR-JPY cross was showing a similar decline. EUR-USD was virtually net unchanged at 1.3489 bid. The commodity bloc units of the AUD and NZD saw subdued trade. AUD-USD was also near net unchanged at 0.9355 bid.

    [EUR, USD]
    EUR-USD has remained in consolidation, with trading having been anchored around 1.3500 for several sessions now. We think the risks remain to the downside with the ECB policymakers on a march to stress dovish arguments -- Coeure became the latest council member to re-emphasize that monetary policy will remain expansive -- and with uncertainties prevailing in the U.S., stemming from the latest debt ceiling showdown in Washington along with enduring question about the timing of Fed tapering question. The week's low at 1.3460-61 provides an initial support level, ahead of 1.3450, where a cluster of bids are reported. Resistance is marked at 1.3500 and 1.3525-26, and stronger resistance at 1.3550.

    [USD, JPY]
    USD-JPY remains in a moderately bearish trend, with both the 50- and 200-day moving averages being challenged at 98.55 and 98.47, respectively. We look for a move to 98.27, the Wednesday low point, and sub-98.00 levels beyond that. Japan's core CPI rose 0.8% y/y in August, stronger than expected following the 0.7% core gain in July, the fourth straight month of annual growth, adding to the evidence that the BoJ's ongoing effort to end deflation is meeting with some success. This backdrop should be yen support as it implies a less certain future for yen funded carry trades. Japan's finance minister, Aso, meanwhile, said he was not considering a cut in corporate taxes, negating the remarks of PM Abe yesterday that a cut was being considered and showing his determination for fiscal prudence. .

    [GBP, USD]
    GBP recovered after BoE Governor Carney also said today that there is no case for more QE, a clear sign that the central bank its (finally) taking a less dovish stance, albeit within the context of its dovish forward guidance message. Sterling had taken a hit following the unexpected downward revision to y/y U.K. Q2 GDP data yesterday., though the data is backward looking and survey evidence are strongly pointing to an acceleration in GDP growth in Q3, to 1.0% q/q, we anticipate, from 0.7% in Q2. The Sep-18 peak of 1.6113 in Cable, which is the highest level seen since January, provides a natural target for the bullish market. Support is pegged at 1.6040-50, ahead of 1.6000.

    [USD, CHF]
    The cross has been trending lower over the last two weeks, having fallen from 1.2400-plus levels, and took and extra step down in falling to a low of 1.2264, the lowest level since June. The EUR had closed below the 200-day moving average earlier in the week, and this seemed to have portended the fresh losses. The mixed fortunes of global stock markets in recent sessions had helped support the safe-haven CHF. However, the speculative part of the market will be reluctant to establish short positions at sub-1.2300 levels in light of the persistent downside failures under this level since April. SNB's Jordan, earlier this week, reminded markets that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals.

    [USD, CAD]
    USD-CAD has settled lower after hitting a 12-day peak on Thursday, of 1.0340, following the breaking of the 1.0300 level earlier in the week. The 1.3000 level is now a near-term support, along with the 200-day moving average at 1.0305. Resistance is pegged at 1.0315-25, which encompasses the presently position of the 20-day moving average. The momentum of the rally in place from last week's sub-1.0200 lows has ebbed, and we would expect to see some consolidation. Canada's data calendar remains light through the end of the week, leaving the focus on U.S. indicators, including expected upward revision to Q2 GDP and jobless claims.

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