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By XE Market Analysis August 6, 2013 6:42 am
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    XE Market Analysis: North America - Aug 06, 2013

    The dollar was mixed to lower in Europe. EUR and GBP moved ahead on positive data, which included strong German orders and a pick up in U.K. production numbers. Eurozone spreads narrowed, which was a euro positive as Italian GDP came in slightly better than expected. USD-JPY showed early promise after it rebounded out of 97.80 towards 98.60 on reports that the Japan civil service pension fund may up its allocation of stocks from JGBs. However, it reverted back to 98.00 as intra-day accounts faded the rally. AUD and NZD were on a firmer footing. The RBA cut rates as expected by 25 bp, but shorts covering on repositioning after the policy statement was deemed to be slightly less dovish. Meanwhile, investors took a gamble on NZD longs as the government tried to allays fears over NZ food products after the recent Fonterra milk contamination news.

    [EUR, USD]
    EUR-USD headed higher. Movement into 1.3250 met option interest, while spread narrowing in the Eurozone was also euro positive. The EUR traded into outstanding option maturities at 1.3285. However, further gains are still likely to meet Asian sovereigns, while interbank flow is reportedly skewed in favour of EUR selling. The technical influence is currently neutral and intra-day accounts are more likely to job the range unless 1.3300 breaks. Higher up, real money are still looking to sell towards 1.3340-50 based on Fed policy risk.

    [USD, JPY]
    USD-JPY is currently underpinned after a decent rebound out of 97.80 to 98.50, which started in late Asia and carried over the European open. Japanese buying was heavy towards 97.80 ahead of key technical support from 97.75. The source of the USD-JPY upturn was a news piece quoting a source that suggested the civil service pension fund could review its equity market allocation following the GPIF's recent review. A decision will not be announced until October, but it helped the Nikkei on the periphery, along with technical demand ahead of the 14k level. USD-JPY faded after the early promise and reverted back to the 98.00 region, which is a warning for dollar longs and also suggests another push lower.

    [GBP, USD]
    GBP moved back to the top of the range. Cable traded just shy of 1.5395, where offers are noted ahead of outstanding 1.5400 option exposure, while EUR-GBP triggered stops at 0.8620 and then turned back to 0.8630 on short covering. The upturn in GBP came after more U.K. data strength. Both industrial and manufacturing production data beat expectations by a decent margin and followed overnight strength in BRC retail sales and a pick up in Halifax house prices. U.K. data has been broadly positive ahead of tomorrow's BoE Inflation Report, which should reaffirm extended easy policy. However, the sustained recovery in U.K. activity also extinguished any lingering prospects of further stimulus ahead.

    [USD, CHF]
    CHF benefited from a move out of risky positions on Monday, which spilled into the Asian market. Fed policy tapering expectations remain alive as more U.S. data justified a reduction in the pace of QE. A downturn in EUR-USD was the catalyst for a EUR-CHF fall from 1.2350 through 1.2300 in N.Y. However, USD-CHF also remained heavy under 0.9300 on stock moves and specs fished for stops lower down in the cross. Once 1.2300 broke thin trading conditions triggered a move as low as 1.2267, which took out rumoured option barriers at 1.2275. Thereafter, EUR-CHF rebounded back over 1.2300.

    [USD, CAD]
    USD-CAD moved within a narrow range on Monday with Canadian markets closed for a public holiday. Friday's price action immediately after the U.S. NFP was a positive indicator for USD-CAD in the near-term. USD-CAD dip buying should persist in the short-term. However, range trading bias has continued overnight after USD-CAD stalled into resistance at 1.0400-05 and reverted to the 1.0340-50 region. When trading returns to normal after the North American open it may have scope for a sustained push back over 1.0400 and could indicate an extended run on the mid-July consolidation zone at 1.0440-50.

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