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By XE Market Analysis July 8, 2013 6:42 am
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    XE Market Analysis: North America - Jul 08, 2013

    Risk appetite in Europe was positive after weak sentiment in Asia. Early activity was influenced by news that Greece are likely to reach a deal with its creditors in order to receive the next bailout tranche. Markets still benefited from last week's dovish policy bias from the ECB and BoE, while Friday's U.S. NFP data also offered encouragement about the U.S. economic outlook. In Asia, China remained a concern after the State Council said last Friday it would cut off credit to force consolidation in industries plagued by overcapacity, while the MoF ordered China's central government agencies to cut expenditure by 5%. The dollar ended the European morning a touch easier, but a modest distance from intra-day highs set in early Europe. EUR traded over 1.2850, Cable moved above 1.4900 and USD-JPY held close to 101.00.

    [EUR, USD]
    EUR-USD moved back over 1.2850 late on in the European morning after 1.2800 held in early trade. An underlying USD bid is being absorbed by option barriers, along with short term support as the EUR worked off oversold levels. Bias remains on lower levels, but we suspect that fund names and position traders will look for better levels to sell into. There was moderate demand after news that Greece was likely to reach a deal with creditors. An article in the Der Spiegel said that an ECB rate cut was blocked by seven council members, including Weidmann, Knot and Asmussen. The proposal for a cut was reportedly prepared by chief economist Praet and backed by Draghi. It suggests that the ECB may not cut rates again, but likely to maintain the dovish stance and any further measures could focus on proposals for SMEs.

    [USD, JPY]
    USD-JPY found support around 101.00 and is turning higher as European equity markets posted strong opening gains. The tone improved on news that Greece is likely to reach a deal with creditors, while investors are still taking an optimistic tone last week's forward policy guidance from the ECB and BoE. Friday's strong U.S. NFP release should be a positive lead for USD-JPY in the near-term as the rise in U.S yields feeds macro fund demand. Meanwhile, the JPY crosses are also benefiting from speculative flows, which drove EUR-JPY up from 129.40 through 130.00.

    [GBP, USD]
    GBP remains heavy after it crashed to 1.4860 lows over the NFP data. There was selling pressure on upticks in early Asia, which forced it back into the 1.4860 region. Since the European session got underway buyers on dips have included Asian reserve managers, while there is largely outstanding option barriers at 1.4850. Offers are noted from 1.4925-30.

    [USD, CHF]
    EUR-CHF was stable throughout, though large offers into 1.2400 held as EUR gains were offset by a small USD correction. Early action was influenced by light repositioning, but overall the CHF has maintained a softer tone since last week's dovish policy guidance from the ECB and BoE, along with more evidence that the U.S. economy is recovering. The cross is being helped to a degree by the slight pick up in the EUR tone as the USD corrects some of its firmness, which fueled a USD-CHF move towards support into 0.9630-40. Domestic data from Switzerland today did not have any direct impact on the market. However, after last week's unexpected pick up in inflation, Swiss June unemployment improved a notch at 2.9% from 3% previously and Q1 industrial production came in at 3% y/y from 1.7% in Q4.

    [USD, CAD]
    USD-CAD headed back towards the 1.0550 region by early Europe as profit taking set in. On Friday, the twin Canada/U.S. employment reports saw the pair rally sharply from near 1.0525 to over 1.0600. The rally marked the first time over 1.0600 since October of 2011, where a high of 1.0657 was printed. Option barriers were reportedly extinguished at the figure on the move, though fund and CTA selling was noted above 1.0600. We look for some near term consolidation, with 1.0550 to 1.0600 holding for now.

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