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By XE Market Analysis August 5, 2013 7:00 am
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    XE Market Analysis: North America - Aug 05, 2013

    Market movement in Europe was still lethargic despite last week's central bank policy outcomes and Friday's NFP release. EUR gravitated towards 1.3300 due to positive short term technical indicators and a heavier dollar tone that carried over from Asia as participants keyed off U.S. economic data misses on Friday. However, the EUR still struggled to sustain higher levels. GBP was the main mover after a strong U.K. services sector PMI release lifted Cable to the 1.5380 region and forced EUR-GBP under 0.8450. AUD steadied around 0.8900 after it met good demand around 0.8850 overnight. NZD remained soft around 0.7760 versus 0.7744 lows as weekend news that Fonterra found botulism in some of its milk products resulted in a big figure discount at the open from 0.7850 to 0.7750.

    [EUR, USD]
    EUR-USD moved into 1.3300 amid dollar heaviness and Eurozone services PMI releases. The headline release came in at 49.8 from 49.6 previously, which was a touch better than expected. French and Italian readings came in on the firmer side, but the German reading missed expectations. The EUR upside attracted due to positive technical studies, but appetite to break the range is still limited and EUR is still trading below spike highs of 1.3345 seen after the Fed policy outcome. Economic fundamentals still argue for dollar strength over the medium-to-long term and real money investors should still sell EUR into strength. Eurozone retail sales dipped 0.5% m/m in June, which was slightly less than feared, but did not influence the prevailing EUR tone in quiet trade.

    [USD, JPY]
    USD-JPY headed to 98.30 lows amid general dollar selling. The downturn in the dollar pairing was a continuation of Friday's post-NFP losses, which tipped USD-JPY under 99.00. European accounts were early sellers from 98.80 as selling pressure via the JPY crosses weighed in Asia. USD-JPY may have scope for a move back towards last week's lows just ahead of 97.50 into the BoJ policy decision later this week. An unchanged policy stance is widely expected while PM Abe works on economic reform plans, which will be detailed in September. The outcome could have a bearing on the JGB market and this should keep the BoJ sidelined for now.

    [GBP, USD]
    GBP pushed higher after a strong U.K. services sector PMI reading. Cable jumped from 1.5320 to the 1.5380 area, while EUR-GBP moved under 0.8350. GBP started the European session well supported amid speculation that today's services sector PMI reading would come in on the firmer side. The source of the speculation was due to other recent PMI data strength. Recent U.K. data reinforced expectations that the U.K. economy is now experiencing a sustained recovery. The recent upturn in U.K. activity will leave the BoE on hold for the foreseeable future, but it should maintain that easy policy will remain when it provides more details on formal policy guidance on Wednesday.

    [USD, CHF]
    EUR-CHF consolidated close to 1.2350 and USD-CHF traded around 0.9300 in quiet trade. EUR-USD's inability to sustain a move over 1.3300 enabled USD-CHF to firm up from 0.9275 back over 0.9300. EUR-CHF recovered, trading out of 1.2325 to 1.2355. The EUR-CHF outlook will depend on USD-CHF progress. However, it's inability to push through 1.2400 on Friday has left a heavier tone and it should meet fresh offers on upticks.

    [USD, CAD]
    USD-CAD is still in good shape. Apart from a brief flush out of weak longs on Friday over the NFP release, USD-CAD recovered quickly. It printed 1.0339 lows and then headed back to the 1.0400 region, where it traded during today's overnight session. The move over 1.0350 late last week reinforced bullish expectations after several sessions of base building around 1.0250 and there is scope for a sustained period of movement over 1.0400.

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