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By XE Market Analysis November 6, 2013 6:32 am
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    XE Market Analysis: North America - Nov 06, 2013

    Risk appetite picked up during the European morning after a mixed overnight session. GBP added to Tuesday's gains after U.K. manufacturing and production data beat expectations, which lifted Cable above 1.6100 and left EUR-GBP heavy below 0.8400. EUR benefited from an upward revision in Eurozone composite PMI, although it was still down from September and the national readings were mixed. Eurozone retail sales came in on the weak side, though there was no lasting impact as German September manufacturing orders surged. The slight improvement in market sentiment weighed a touch on the CHF and JPY, although ahead of key data and event risk on Thursday and Friday appetite to add large positions was contained.

    [EUR, USD]
    EUR-USD received mild support from Eurozone services PMI data. There were mixed national readings, but the main services and composite readings were revised higher. EUR-USD drifted towards 1.3510, though follow through was contained by EUR-GBP heaviness under 0.8390, along with an overhang of offers from 1.3530 to 1.3550. Short term accounts are still positioning for the downside ahead of tomorrow's ECB meeting, though activity has been on the low side generally. If the ECB leaves policy unchanged tomorrow EUR could squeeze higher and stops between 1.3570 and 1.3600 will be vulnerable.

    [USD, JPY]
    USD-JPY drifted back into 98.50 after the topside was capped from 98.75 in Asia. The overnight rise in the Nikkei boosted demand for USD-JPY and the JPY-crosses, although the dollar pairing is still being hampered by option strike congestion. There are very large strikes rolling off at 99.00 and 100.00 today, along with smaller exposure at 98.45-50, 98.65-75. Note, that large option barriers from 99.00 to 100.00 are still live until the end of November and early December and should still fuel some defensive selling. However, given that we are still a few weeks away from expiry gamma trading may not be as influential and topside hedging could begin to chip away at offers once today's expiries roll-off. Strong U.S. data on Thursday and Friday would also reinforce Fed taper risk for December and imply a USD-JPY move back to the 100.00 area.

    [GBP, USD]
    GBP held firm after U.K. industrial and manufacturing production rebounded in September. Cable cleared 1.6100 just ahead of the release on EUR-GBP heaviness under 0.8390. Cable chopped between 1.6065 and 1.6115 immediately after the release, but was a touch firmer overall. Both the manufacturing and industrial production readings were firmer than forecast and after yesterday's services PMI strength it should keep GBP underpinned in the near-term.

    [USD, CHF]
    CHF edged lower against the EUR and the USD as equity markets in Europe firmed up. EUR-CHF moved up through 1.2320 as the 1.2300 level held in early Europe and USD-CHF found buyers near 0.9100 and is close to 0.9120. Eurozone services PMI provided a modicum of support for the EUR, though momentum was clipped by a weaker than expected Eurozone retail sales release and a reluctance to add risk ahead of tomorrow's ECB policy outcome. Given the data/event risks that are due on Thursday and Friday is seems likely that the CHF will move within a narrow trading band.

    [USD, CAD]
    USD-CAD was tied to a narrow trading band. It continues to find support into 1.0425, while running into offers at from 1.0450-60. However, supply may not be as heavy as it was last week when option barriers at 1.0500 influenced, along with real money demand for CAD. The downturn in risk assets has also added weight on the CAD tone, and it may threaten last week's peak just ahead of 1.0500 in the coming sessions.

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