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By XE Market Analysis November 1, 2013 6:51 am
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    XE Market Analysis: North America - Nov 01, 2013

    The FX market reflected re-pricing of central bank policy expectations, which boosted the USD and weighed heavily on the EUR. Market positioning exacerbated the depth of the move over the last 24 hours and volumes have been much larger than average, according to flow desks. EUR-USD threatened 1.3500 and was matched by a meltdown in the crosses. USD-JPY whipsawed. Heavy JPY-cross selling triggered a move in Asia from 98.35 to 97.80 and then it rebounded in Europe to 98.30 on dollar flow. The CHF was choppy as a result of contrasting EUR and USD flows, while the commodity bloc struggled with risk assets. There were some bright spot on the macro front. China manufacturing PMI picked up pace in October and South Korea exports were much stronger than expected. However, Swiss and U.K. manufacturing moderated.

    [EUR, USD]
    EUR-USD threatened 1.3500 after it tumbled from the 1.3550-60 region in early Europe. Large interbank names reported very heavy EUR long liquidation since yesterday by medium term accounts and macro funds as the interest rate market re-priced the ECB rate outlook after the weaker than expected Eurozone CPI reading on Thursday. Several research desks have tipped a rat cut by November, though we still think December is the more likely option and will also be more timely in the respect of liquidity consideration as the LTRO comes to an end. EUR demand into the 1.3500 region has included corporate bids and light option flows, but the upside is still fairly shallow with close-to-market sellers from 1.3530 and over 1.3550.

    [USD, JPY]
    USD-JPY was weighed by JPY-cross weakness in Asia, but in Europe it rebounded on dollar flows. The dollar pairing dropped from 98.40 to 97.80 overnight amid heavy supply in EUR-JPY and GBP-JPY. With markets rethinking a Fed December policy taper there was also a reduction in leverage positioning generally, which boosted JPY via emerging FX and cleared out large positions due to stops. USD-JPY found support at the lows from Japanese importers and once the JPY-cross adjustment ran its course it reflected dollar firmness across the board and headed back to 98.30.

    [GBP, USD]
    Cable cleared out a congestion of good orders between 1.6010 and 1.5990 as the dollar bid steepened from the European open. EUR-USD losses have weighed on Cable since Thursday, though EUR-GBP's deep move from 0.8580 through 0.8450 has slowed the pace of the Cable drop to a degree. The EUR-GBP reversal has been significant and reflects the shift in ECB rate expectations, while GBP fundamentals have not changed significantly. However, there are signs that the pace of activity in the U.K. economy may be moderating after a very impressive Q3. For example, today's manufacturing PMI came in at 56.0 from 56.3 previously and followed the downturn in consumer confidence and CBI distributive trade.

    [USD, CHF]
    CHF had a choppy start to the session amid USD and EUR flows. An early push out of stale EUR longs forced EUR-CHF down to 1.2300, but this was offset by a stop hunt in USD-CHF, which took the dollar pairing from 0.9070 up to 0.9115 and EUR-CHF briefly traded back at 1.2325. The CHF may seen buying interest on dips against the EUR in the very near-term as risk assets struggle with the market rethink on Fed taper. USD-CHF looks poised for further gains after it marked the fifth consecutive session of higher highs and 0.9150 resistance is the next target. There was no impact from Swiss manufacturing PMI, which pulled back to 54.2 from 55.3 previously, though still in expansionary territory.

    [USD, CAD]
    USD-CAD slid to 1.0412 by yesterday's North American afternoon session following the better Canadian GDP outcome. Standing bids at 1.0410 put a temporary floor underneath the pairing overnight and more buyers are seen at 1.0400. On the other side, 1.0500 barriers, which came within two pips of being extinguished on Wednesday (for today's expiry), looked a bit safer. The bias for USD-CAD looks weak based on technical indicators, but underlying dollar firmness and a risk-off tone could limit the downturn.

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