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By XE Market Analysis August 23, 2013 6:30 am
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    XE Market Analysis: North America - Aug 23, 2013

    The dollar was mixed, but largely stable overall. EUR edged back over 1.3350, which was a symptom of European account demand as bids held at 1.3330. The market did not react to comments overnight from ECB's Nowotny, which suggested that the ECB was likely to remain on hold after recent economic data. Germany Q2 GDP was confirmed at 0.7% q/q. GBP firmed up as the second reading of U.K. Q2 GDP was revised up to 0.7% q/q from 0.6% previously. USD-JPY consolidated close to 99.00 after it extended the recent rally to 99.14 on firm U.S. Treasury yields. The commodity bloc currencies remained heavy. AUD and NZD struggled to shake off the link with weak emerging Asia FX. USD-CAD added to gains on fund demand and cleared 1.0550.

    [EUR, USD]
    The EUR downside was underpinned by bids at 1.3330 early on and outstanding 1.3300 orders from Thursday are still noted and protect sell stops from 1.3290 to 1.3270. This enabled EUR to edged up to 1.3365-70 in Europe and also where EUR topped out in Asia. The pick up in U.S. yields absorbed any potential upside moves on Thursday and overnight, while there was further talk of sovereign accounts on top. Comments from ECB's Nowotny indicated that in all likelihood the ECB will remain on hold for the foreseeable future. EUR could still benefit from rising market rates and there is still persistent talk of real money that is pouring money back into the Eurozone. These flows are still being offset by underlying dollar demand towards 1.3400 and above. A recent Lipper Survey said that U.S. based European stock funds saw the biggest inflow in ten-week by $1.08 bln, while U.S. based stock funds posted the biggest outflow since July 2012 by $9.4 bln.

    [USD, JPY]
    USD-JPY consolidated overnight gains, leaving it close to 99.00. The recent pick up in U.S. yields boosted USD-JPY long positions and there is also a pick up in JPY-cross demand. The USD-JPY rally ran out of steam just ahead of August-4 highs at 99.15, where buy stops are noted. Since the European session got underway corrective action is limited to the 98.75 area. Japanese retail investors have been moving back into yield in recent sessions, though there are reports that the pressure in emerging markets is a concern, as well as increasing risk of reduced central bank stimulus globally. This was reflected in the latest MoF weekly flow data released late Wednesday, which revealed investors were sellers of foreign bonds for the first time in seven weeks.

    [GBP, USD]
    GBP moved to intra-day highs as U.K. Q2 GDP was revised up. Cable rose from 1.5600 to 1.5640 on the data after long position building was noted from 1.5575 as specs positioned for an upside surprise. A series of short term offers were filled, though longs that played for the upside are also booking profit into 1.5640, where more sellers are seen. There are more offers layered towards 1.5700 as Thursday's drop encouraged a build up of fresh order flow. The data should support GBP on dips, but not a big surprise after June data improvement and more forward looking data will determine the long-term direction. Dovish comments from Weale late Wednesday has limited Cable's recent rally below long-term resistance near 1.5750.

    [USD, CHF]
    The CHF is consolidating easier levels. The better tone for equity markets has seen EUR-CHF maintain firmer levels around 1.2335, while USD-CHF is near 0.9250. The CHF weakened earlier in the week on very strong demand for EUR-CHF from Swiss private banks under 1.2300, while a combination of better PMI data and the FOMC reinforced the theme. Ahead of the weekend there is limited appetite to add speculative positions. The tone in Asia, while improving, is still fragile. Emerging markets have only posted tentative gains and there are rumours that China banks may need funding. The Japanese press is also reporting that Japanese investors are liquidating exposure to foreign bonds amid concerns over rising U.S. yields.

    [USD, CAD]
    The USD-CAD upswing continued overnight and it cleared away July-10 highs at 1.0540 and options at 1.0550. CAD$ had weakened earlier in the week in line with other commodity bloc currencies. However, since it broke 1.0500 Thursday it has rallied on its own steam as a wave of model fund and momentum account demand went through. USD-based macro positioning also got added backing from the weak Canadian retail sales data and there are only minor resistance levels ahead of the next psychological level at 1.0600. There is likely to be more option related flows towards 1.0570-80, while previous tops are noted at 1.0563 and 1.0586. The downside is underpinned at 1.0500 and 1.0475-80.

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