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By XE Market Analysis August 20, 2013 6:12 am
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    XE Market Analysis: North America - Aug 20, 2013

    It was a choppy session in FX. Early action was dominated by deleveraging as Asia FX came under more pressure amid capital outflows from IDR and INR, which triggered intervention by local reserve managers. AUD and NZD also fell sharply on dovish policy rhetoric from the RBA and RBNZ, along with proxy selling by fund names that were betting on more Asia market stress. A downturn in global stocks boosted JPY and CHF as USD flows were limited initially. USD-JPY tested 97.00, but large stops lower down held, which triggered short covering, while EUR-JPY rallied on Japanese retail demand. There were other decent EUR-cross flows. EUR-NOK surged on much weaker than expected growth data and EUR-CHF rebounded on local demand from 1.2285 to 1.2325. EUR-USD benefited and there was also Asia reserve management activity and it printed 1.3400.

    [EUR, USD]
    EUR-USD rallied on EUR-cross demand. An early move down to 1.3325 ran out of steam and it hit intra-day highs over 1.3385. One feature of the EUR-USD upturn was light short covering in EUR-JPY as USD-JPY held the 97.00 handle. EUR-NOK was also a big mover as Norwegian Q2 GDP came in at 0.2% q/q, which was well below expectations (0.7% median) and boosted the cross from 7.8900 to 8.000. Currently, there is no appetite to hold currencies that are exposed to commodities, particularly one's where liquidity can be compromised. For EUR-USD further upward momentum will depend entirely on the 1.3400-20 area, which has held on recent tests over the last two weeks. Flows on top of the EUR include U.S. corporate hedging activity.

    [USD, JPY]
    USD-JPY tested 97.00 early on amid deleveraging from early Europe as funds keyed off weakness in Asian markets and early pressure in Europe. USD-JPY stops gave way through 97.30 and early European accounts sold the pair on upticks. However, after failing to sustain a move under 97.00 short covering went through. Good demand for EUR-JPY was a factor on the way up and the cross move out of 129.30 to 130.50 helped USD-JPY back to 97.45.

    [GBP, USD]
    Cable followed the trend and also benefited on the EUR-USD rebound. Buyers were steady and persistent in the early movement under 1.5650 and it cleared away yesterday's highs at 1.5674 to reach 1.5680. Option related offers have absorbed some of the buying interest. However, downside movement should remain limited amid a bullish technical backdrop and the support in U.K. money market rates. Overnight intervention in local currencies by Asia reserve managers should also benefit sterling to a degree.

    [USD, CHF]
    EUR-CHF experienced a volatile European morning session. Initially funds headed to safety, which tipped EUR-CHF under 1.2300 following a negative lead from stocks and weak technical levels. The downturn in EUR-CHF was accompanied by investor uncertainty as the prospect of higher rates fueled a flight to safety. Good local name bids emerged around 1.2285 and it managed to post a rebound back over 1.2300, which extended to 1.2325 as EUR-USD threatened the 1.3400 area.

    [USD, CAD]
    USD-CAD extended higher overnight. Heavy selling via AUD and NZD triggered a negative lead for CAD$. Stocks eased, along with commodities and there were significant flows out of emerging FX, which underpinned the USD tone. Against this backdrop USD-CAD rose from N.Y. closing levels around 1.0345 and moved up to 1.0375. There are offers into 1.0380 and after the recent failure over 1.0400 there are fund names anticipated into this region. This held the topside throughout the European morning. However, buyers are the downside are now higher than they were and likely to enter the market into 1.0330-40, where previous sell-interest was noted. Good support is also noted ahead of 1.0300.

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