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By XE Market Analysis August 26, 2013 7:46 am
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    XE Market Analysis: North America - Aug 26, 2013

    With London closed both conditions and trade have been light today. EUR-USD and EUR-JPY ebbed amid general, though mild, euro weakness after ECB's Weidmann warned that the debt crisis is not over yet. Other pairings, including USD-JPY and AUD-USD were near to their respective Friday closing levels as of the early PM session in Europe. Market participants are continuing to monitor the possible responses of the UN and U.S. to the Syrian government's use of chemical weapons. Stock markets in Europe were lower, while stocks in Asia were mostly higher amid lessening expectations of Fed QE tapering.

    [EUR, USD]
    EUR-USD ebbed to a low of 1.3364, barely 20 pips below its London closing low of Friday, and the pair subsequently settled around 1.3375. Resistance is pegged at 1.3400 and Friday's peak of 1.3409. Bigger picture, the six-week rally from sub-1.3000 levels is now loosing momentum quite notably on a technical basis, which portends that price action may become increasingly heavy over upcoming period. ECB's Weidmann warned via an interview with Handelsblatt that the debt crisis is not over yet and stressed that Greece must not have more debt write offs. He also said that the ECB's stress tests may show that some banks need more capital. Also, German refinancing costs in today's 12 months bill auction also jumped higher, indicating that the impact of the ECB's forward guidance is fading.

    [USD, JPY]
    USD-JPY posted a low to 98.17 in thin pre-market trade and subsequently rebounded and settled around the 98.50 area. Japan's corporate price index came in at +0.4% y/y, as expected, and to little market impact. The Aug-4 high of 99.15 remains a key resistance level, with 0.9875 and 99.00 interim resistance levels.

    [GBP, USD]
    GBP trade has been practically non-existent today in London's absence. BoE Deputy Governor Bean defended the forward guidance, saying that he has been a bit surprised by the market reaction to guidance. He said that guidance is valuable when recovery is gathering pace, that the BoE is giving a clear signal that a tightening is not imminent, and that the 7% unemployment target is sensible. He further stressed that he sees no sign of a housing boom developing and that further QE remains an option. Bean's message is similar to that given by his colleague on the MPC, Weale, last week, and we can expect that BoE Governor, Carney, will make similar arguments when he appears for parliamentary testimony this Wednesday.

    [USD, CHF]
    The CHF is consolidating. The generally better tone for equity markets has seen EUR-CHF maintain firmer levels around 1.2350, while USD-CHF is near 0.9250. The CHF weakened in the earlier part of last 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. The Swiss calendar this week is highlighted by the KOF leading indicator (Friday). We expect it to come in at 1.35 to mark the fifth straight improvement, and at an accelerating rate. The stabilization in European economies is being a particular benefit to the export oriented Swiss economy. Although the fundamental outlook is improving, core inflation remains negative and we don't expect any softening in the SNB's commitment to maintain zero interest rates and its 1.20 limit cap in CHF versus EUR exchange rate. The central bank is using a counter-cyclical facility, which requires higher reserve ratios at domestic banks, to address the risk of a real estate bubble developing,

    [USD, CAD]
    USD-CAD has been consolidating last week's gains, which saw a six-week high logged at 1.0568. The pair has since settled around the 1.0500 mark. Option and corporate bidding interest have been reported into 1.0500. Firmer oil and gold prices supported the CAD to a degree, while narrowing of U.S.-Canada rate spreads helped as well.

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