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By XE Market Analysis August 22, 2013 6:57 am
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    XE Market Analysis: North America - Aug 22, 2013

    The dollar headed higher as yesterday's FOMC minutes elevated U.S. yields. However, it still left unanswered questions. This is likely to raise the significance of today's jobless claims data, which will provide more important information ahead of the September NFP release. Good flows in the European session included fund names adding more USD-JPY long positions on contrasting central bank outlooks, while emerging Asia FX suffered further weakness, which weighed on the commodity bloc currencies. EUR met sellers on upticks despite Eurozone PMI data strength. Cable also suffered as result of dovish comments from BoE MPC hawk Weale. China PMI also improved overnight, which was a positive for Asia, though Fed concerns still dominated.

    [EUR, USD]
    EUR-USD headed lower amid underlying dollar strength. Early action was dominated by two-way flows as market participants digested PMI data. A move up to 1.3365 was used as a selling opportunity though as the intra-day tone shifted in favour of short positioning as the FOMC minutes backed expectation for policy tapering. Offers were reset from 1.3360 to 1.3380 ahead of the 1.3400 pivot and downside pressure increased over the European morning. Movement may still remain slow though amid persistent talk of European corporate hedging activity. There has also been speculation that investment managers are underweight Eurozone assets and another potential source of inflows that will absorb EUR selling.

    [USD, JPY]
    JPY headed lower as PMI data from China and Germany boosted risk appetite. USD-JPY rallied from 97.70 to 98.80 on an intra-day basis as a series of stops were cleared away. Fund names positioned for further upside based on the premise that USD-JPY will sustain higher levels amid rising U.S. yields, while BoJ Kuroda sounded willing to ease policy again next year if the sales tax hike hampered the recovery.

    [GBP, USD]
    Cable pulled back sharply from the 1.5700 region and extended under 1.5600 on broad dollar demand. However, the correction was exacerbated by comments from BoE's Weale, who said that he could certainly envisage circumstances in which it would be sensible to undertake further asset purchases. Cable should still find buyers on dips amid better fundamentals, but the persistent upturn in GBP may have left some two-way risk now and playing the range may be the more favourable strategy. Offers are seen into 1.5640, 1.5670 and 1.5700. There is near-term support at 1.5550-60.

    [USD, CHF]
    CHF fell as European stocks rallied on PMI data. Early action was dominated by USD-CHF gains following the FOMC minutes, which elevated the pair from under 0.9200 back over 0.9250. However, European action was influenced by an early EUR demand as German PMI data boosted the composite reading and helped EUR-CHF to move out of 1.2320 up to the 1.2345 area. Further gains in the cross were limited to a degree by Japanese demand for CHF-JPY. On an intra-day basis it rallied out of the 152.70 area and extended to 153.75 during the European time zone. Japanese accounts are putting their money to work overseas, but in contrast demand for CHF-funded trades are still being hampered to a degree by Eurozone spreads.

    [USD, CAD]
    USD-CAD extended gains. A firmer dollar tone and more pressure on the commodity bloc currencies lifted it to 1.0500, which were its best levels since July-10. Risk aversion, softer energy prices, and concerns over central bank stimulus withdrawal have all weighed on the CAD this week. It is now at levels though where decent supply should emerge. As well as, outstanding option related hedging there is good resistance and corporate hedging noted.

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