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By XE Market Analysis September 30, 2013 3:04 am
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    XE Market Analysis: Europe - Sep 30, 2013

    News of the weekend were risk-off, which saw the USD and JPY rise against most other currencies in the Asia-Pacific session amid a backdrop of declining stock markets. EUR-USD dove about 40 ticks at the open to a low of 1.3478 before recovering to the 1.3500, leaving the pair about 20-30 pips below levels seen around the London close on Friday. The dollar was moderately higher against other currencies, such as commodity bloc currencies, though was lower versus the JPY, which saw its usual outperformance at times of risk aversion. A notable exception was GBP, which popped to a fresh trend high of 1.6180, with recent strong U.K. data and less-dovish tone of BoE-speak helping convert sterling into a safe haven currency. The weekend delivered news that of Berlusconi's party withdrawal of support from the Italian government while, in the U.S., the House of Representatives voted on Sunday to stop many of the Affordable Care Act's central provisions for one year, and if the Senate rejects the bill today the government could be shut down from Tuesday. Markets also had to digest a disappointing final Chain HSBC-Markit PMI number for September and a mixed bag of Japanese figures.

    [EUR, USD]
    EUR-USD remains anchored around 1.3500. There is talk in the market of month-end related demand for dollars. Last 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 1.3525-26, and stronger resistance at 1.3550

    [USD, JPY]
    USD-JPY dropped to a one-month low of 97.63 as risk aversion ensued. The break of both 50- and 200-day moving averages last week portended the run lower, and we look for a move to 97.00. The revival in Japan's core CPI, which rose to 0.8% y/y in August, added to the evidence that the BoJ's ongoing reflationary effort, a backdrop that should be yen support as it implies a less certain future for yen funded carry trades. Japanese data today were mixed, though a soft August industrial production figure was offset by a strong forward looking PMI survey outcome for September, along with an improvement in August retail sales..

    [GBP, USD]
    GBP-USD rallied a fresh trend high of 1.6180 and EUR-GBP to a new trend low of 0.8340. Recent strong U.K. data and less-dovish tone of BoE-speak helping convert sterling into a safe haven currency. The next key resistance on the Cable chart looks to be 1.6200, which had proved formerly a pivotal level during the latter part of 2012. A trend support line, draw from August lows, comes in some way below prevailing levels at 1.5970, a technical sign that the market is looking over-bought relative to trend.

    [USD, CHF]
    The cross has continued to trend lower, having fallen from 1.2400-plus levels two weeks ago but has now breached under 1.2100 and approached the SNB no-go zone near 1.2000, which is the central bank's limit peg for the Swiss currency. The safe-haven CHF has been underpinned by the uncertain political situations in Italy and the U.S., but the speculative part of the market will be reluctant to establish short positions toward 1.2000. SNB's Jordan reaffirmed last week 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 re-established a foothold above 1.3000, which markets near-term support. The heighted risk backdrop, as U.S. budget negotiations go down to the wire again, should keep the commodity bloc CAD on a softer footing. Resistance is marked by the 200-day moving average at 1.3052. In Canada this week, July GDP data will highlight the domestic calendar in the week ahead. Our projection is for GDP (Monday) to rebound 0.5% after -0.5% in June, with the risk for an even stronger gain after strength in all the key July reports. The data should be consistent with an expected acceleration in Q3 GDP to +2.3% after +1.7% in Q2, which would significantly trail the BoC's +3.8% projection from the July MPR.

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