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By XE Market Analysis July 31, 2013 7:50 am
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    XE Market Analysis: North America - Jul 31, 2013

    The was movement today in Europe despite the looming slew of risk events this week. The JPY logged fresh highs against the USD and EUR, the AUD logged a fresh trend low near 0.9000 before finding a toe-hold, the market continued to drive GBP lower as it discounts an adoption of forward guidance at the BoE this week, and EUR-USD saw a 60-pip whip-saw amid speculation that Obama's plan to lower taxes for America corporations might take the form of the former U.S. HIA (Homeland Investment Act, of 2004).

    [EUR, USD]
    EUR-USD whip-sawed amid speculation of a repeat U.S. HIA (Homeland Investment Act, of 2004). The pair dipped to 1.3240, subsequently jumped 1.3300 (reportedly the actual traded high) before retreating to near net unchanged levels around 1.3265. As far as we've discovered the speculation stemmed from news reports that President Obama is considering a plan to lower taxes for America corporations (NY Times article here), and market speculation suddenly spread through the London market that it may be similar to the Homeland Investment Act of 2004 that had strengthened the dollar via incentivising businesses to repatriate capital. Apparently this was downplayed, though we only heard this from a market contact and haven't seen any news report or official communication as yet.

    [USD, JPY]
    The JPY logged fresh highs against the USD and EUR. USD-JPY logged a low of 97.58. A two-week trend support line at located at 97.25 presently. The JPY has been driven by its usual inverse correlation with the Nikkei 225 equity index which underperformed broader equity markets with a 1.5% loss today. EUR-JPY hit a three-week low of 129.33, having breached the 50-day moving average at 129.42.

    [GBP, USD]
    GBP has been a notable underperformer so far this week into the BoE meeting, dropping from levels just above 1.5400 on Monday to a 1.5199 low on Wednesday. The market is pricing in the formal adoption of forward guidance at the BoE's meeting this week (Thursday), which will be used as a rhetorical method of better managing market expectations about the eventual exit from loose monetary policy settings. We expect the BoE will leave the repo rate and QE total unchanged while to announcing forward policy guidance. There may be some potential for an on-the-fact rebound in sterling. Resistance is pegged at 1.5257-60, which encompasses the 20-day moving average, while a near-term trend line target is 1.5135. Data today included a jump in U.K. consumer confidence to a three-year high, offset by a 0.5% decline in the BRC shop prices measure, the lowest in six-and-a-half years and the third consecutive month of price deflation.

    [USD, CHF]
    USD-CHF remains in a bear trend, with a clear two-week trend line resistance coming in at 0.9304 and trend target of 0.9220. The Swiss calendar this week is highlighted by the KOF economic barometer, expected to improve to 1.21 (median same) after 1.16 in the previous month. This would signal improving economic momentum over the next six months. The SVME PMI survey for July is expected to show similar improvement, to 52.5 from 51.9. Although the fundamental outlook is improving we don't expect any softening in the SNB's commitment to maintain zero interest rates and its 1.20 limit cap in EUR-CHF.

    [USD, CAD]
    USD-CAD held above the key 1.0250 level this week, but recovery gains above 1.0300 proved fleeting and the overall bear trend looks to remain in play. Should the Fed refrain from making any explicit signal from QE, which we anticipate, and Canadian GDP meet our projection for a +0.3% in May, up from +0.1% in April, we would expect to see a fresh down phase in USD-CAD and a test of Monday's 1.0252 six-week low. Support levels are seen at 1.0275 and 1.0260 (Tuesday's low).

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