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By XE Market Analysis July 15, 2013 7:07 am
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    XE Market Analysis: North America - Jul 15, 2013

    The dollar firmed up in very quiet European trade. Sentiment started on a positive footing after China Q2 GDP hit 7.5% y/y overnight, which met expectations and is also in line with the government target for growth. Asian stocks rallied, but in Europe sentiment was undermined by Eurozone risks. Political uncertainty in Portugal and Spain weighed. Portugal's three main political parties have set a July-21 deadline to agree to a national salvation pact. Spanish PM Rajoy is under pressure to resign after the weekend press reignited his involvement in the slush fund scandal. After the Fitch downgrade of France on Friday the reaction was muted, although there was vague speculation that Germany could be downgraded, but it has not been taken seriously by market participants so far.

    [EUR, USD]
    EUR-USD headed back to 1.3020 as early upside momentum ran out of steam. USD-JPY buying interest influenced in the absence of other stronger leads. Risk appetite is positive after China Q2 GDP met expectations at 7.5% y/y, which is in line with the government's growth target. However, the EUR was undermined by background Eurozone risks that fueled light selling pressure on upticks. After last Friday's Fitch downgrade of France there was speculation that Germany could be downgraded. Most participant did not take the talk seriously, though. Since last week's EUR surge from 1.2755 to just over 1.3200 large reserve managers and real money were dollar buyers, although in the short term on-going support into 1.3000 is still a mild positive.

    [USD, JPY]
    USD-JPY headed through 99.50 offers and extended towards 100.0 amid dollar supportive flows and a general rise in leverage positioning after China Q2 GDP data. Appetite to sell JPY helped EUR-JPY from 129.65 to 130.30 and AUD-JPY firmed up from 90.30 to 90.80. Today's public holiday in Japan should lower volumes via JPY, though reduced interest from exporters enabled USD-JPY to reassert itself on the 100.00 level. The prospect for large price swings is probably going to be low ahead of Wednesday when Fed Chairman Bernanke is due to speak. Increased confidence in the U.S. economic recovery should be favourable for the dollar in theory even if Bernanke does remind the market that policy tapering is not the same as policy tightening.

    [GBP, USD]
    Cable headed into the 1.5035 region as underlying dollar firmness weighed in quiet trade. Cable made a brief move higher in Asia, but struggled to clear offers around 1.5130 and was pressured in the early part of European trade. Corporate buying went through EUR-GBP out of 0.8640 up to the 0.8660-65 region, which added momentum on the way down. Cable met buyers around the lows and more good bids are noted towards the 1.5000 region. GBP did not react to the latest Rightmove house price data, which underlined the pick up in house prices. Meanwhile, Ernst and Young Item Club said the economy will grow faster this year than previously forecast. It predicted 1.1% growth this year and 2.2% in 2014, citing strong data from services and manufacturing.

    [USD, CHF]
    EUR-CHF edged higher. After hitting lows of 1.2348 late Friday it was on the rise today as risk appetite improved. China Q2 GDP provided positive impetus for stocks, which weighed on the CHF. A EUR-CHF move through 1.2380 was accompanied by USD-CHF gains out of 0.9455-60 back over 0.9500. The dollar is more likely to drive action in the coming sessions given the Humphrey Hawkins testimony from Bernanke on Wednesday. Ahead of then, background Eurozone risk could limit the scope for extended EUR-CHF upside. The cross has quite a strong correlation with Eurozone bond spread yields and since they widened hot money flows have moved back into the CHF. The 1.2400 area will provide interim resistance.

    [USD, CAD]
    USD-CAD moved across 1.0400 into the European session and extended to 1.0425 as the dollar moved higher. For USD-CAD traders the Bank of Canada announcement and MPR are in focus, which is the first for Stephen Poloz as the new governor of the Bank. Assessment of the Alberta flooding could leave a slight dovish tilt, supportive of recent outperformance by Canadian bonds versus Treasuries and negative for the Canadian dollar. USD-CAD could clear offers ahead of 1.0450 ahead of the decision and if there is a dovish tilt from Poloz then offers from 1.0470 to 1.0500 could give way to revive the underlying bull trend.

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