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By XE Market Analysis July 18, 2013 6:43 am
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    XE Market Analysis: North America - Jul 18, 2013

    Dollar consolidation continued in Europe. Overall, the FX market struggled for a clear direction. Bernanke's testimony and Q&A yesterday maintained the status quo. He was dovish sounding, yet at the same time prepared the market for policy tapering, data permitting, which was probably his intention last week when he was misinterpreted by the market. USD-JPY led an early move into the dollar and headed to 100.30, which encouraged light macro fund EUR and GBP supply. There was no follow through and EUR remained steady around 1.3100. Cable firmed up from 1.5160 back to 1.5240 as market participants keyed off yesterday's BoE minutes. There was mild support from U.K. retail sales, which met expectations on the month, but came in on the stronger side on a yearly basis. The highlight in the Eurozone was a better Spanish auction, where refinancing costs fell. The Die Welt said the ECB eased collateral rules for ABS, which may improve funding for SMEs.

    [EUR, USD]
    EUR-USD still lacks a clear trend. Yesterday's inability to sustain higher levels worked against the topside today and offers were noted towards 1.3130, but a congestion of buyers have supported from under 1.3100. ECB's Asmussen reiterated the ECB's expansionary policy stance and said the ECB stands ready to activate the OMT program, while IMF's Lagarde said the ECB has room to deliver if it feels the need. These are not new developments and did not encourage a pick up in activity. One positive lead for the EUR was the fall in refinancing costs at today's Spanish bond auction. The Die Welt also reported that the ECB eased collateral rules for ABS, which is another mild EUR positive. Meanwhile, there are a lot of expiries dotted between 1.3000 and 1.3200 today, with congestion mostly from 1.3150 and above.

    [USD, JPY]
    USD-JPY reached the 100.30 region versus 100.00 at the European open. USD-JPY led the dollar move higher in Asia as markets responded to the testimony from Fed Chairman Bernanke. The slightly dovish stance helped stocks overnight and in-turn weighed on JPY. There are long positions being put on in anticipation of a LDP victory in the Upper House elections on the weekend, which should pave the way for more growth boosting measures from PM Abe. Comments from the president of the Japanese government pension fund helped USD-JPY and the JPY crosses. He said a China 7% growth rate would not have a huge impact and added that it cannot ignore Europe for investment, but risks remained.

    [GBP, USD]
    Cable headed back over 1.5200, where options are maturing today. GBP got a small lift out of 1.5160 on U.K. June retail sales data, which came in at 0.2% m/m, while the y/y on rate hit 2.2% versus a 1.7% forecast, while May's reading was revised up to 2.1% from 1.9% previously. The ONS said q/q sales growth was the highest since Q4 2011 and was boosted by department store sales discounts. Cable has been choppy due to two-way action since the London open.. Macro fund demand for the USD was offset by GBP dip buying following yesterday's BoE minutes, where there was unanimous vote for unchanged policy.

    [USD, CHF]
    CHF is trading at slightly easier levels as USD-CHF posted a small recovery. The dollar pairing fell to 0.9360 lows on Bernanke, but the 200-dma held and the pair headed back over 0.9400 and extended to the 0.9440 region. EUR-CHF has rallied as a consequence of USD-CHF gains and is now trading around 1.2370 from the 1.2325 region. Firmer equity markets should leave the CHF on the softer side in the European morning. The Swiss trade surplus also came in at a stronger than expected CHF 2.73 bln outturn and another positive for the Swiss economy.

    [USD, CAD]
    USD-CAD is supported ahead of 1.0400 as the dollar found fresh buying interest overnight. USD-CAD is in neutral territory currently. Strong bids at 1.0350 kept the downside in check, but the Bernanke testimony has been mildly positive for risk appetite, which has supported stocks and in turn CAD$. Close-to-market offers at 1.0450 are still intact and unless these are cleared away USD-CAD looks likely to run out of steam on the topside.

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