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By XE Market Analysis November 13, 2013 6:07 am
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    XE Market Analysis: North America - Nov 13, 2013

    Activity in Europe was influenced by a bout of repositioning and consolidation for most currencies. GBP was the outlier as it digested a 41.7k drop in the U.K. claimant count and the BoE Inflation Report. Ahead of the releases, EUR-USD drifted back to 1.3410 as the short covering rally ran out of steam near 1.3450 and USD-JPY marked time near 99.50 after it failed to break 100.00 on Tuesday. The U.K. releases lifted Cable out of 1.5880 to 1.6002 highs, though follow through stalled. The BoE acknowledged the improvement in economic conditions and said the 7% unemployment threshold could be reached by Q3 2015, but BoE Governor Carney said this did not mean that it will hike rates and it could still leave policy unchanged.

    [EUR, USD]
    EUR-USD edged lower as the short covering rally ran out of steam near 1.3450. Near-term resistance at 1.3450-60, which represents the post-ECB bounce highs, capped gains. The move higher fuelled EUR short positioning by intra-day accounts and it headed back to 1.3410. There are also negative leads from EUR-JPY and EUR-CHF, which drifted lower as stocks eased. Eurozone industrial production fell 0.5% in September, which was weaker than forecast and compared with 1% gains previously and should keep EUR bias with the downside. However, with the market very short of euros following the rate cut last week, and renewed Fed Taper prospects, positions may need unwind some more before the EUR can record new lows.

    [USD, JPY]
    USD-JPY consolidated close to 99.50 since the Asia afternoon. Japanese banks have informed us that there is a disappointment that 100.00 held yesterday after very heavy importer and fund demand went through from Tuesday's Asia open. The market is quite long at current levels, particularly out of Asia, and there is downside risk building. Option barriers at 100.00 capped on Tuesday, though downside pressure was absorbed by a EUR-JPY bid. A number of expiries at 100.00 are running until late November to early December and dollar supply is likely to remain fairly congested over the next couple of weeks. However, demand for protection has risen and very large positions between 101.00 and 103.00 could be threatened in the latter part of the year if Fed taper risk rises a notch.

    [GBP, USD]
    GBP gained on the BoE Inflation Report. Cable rallied out of 1.5925 and cleared 1.6000 and EUR-GBP fell from 0.8430 to 0.8380 as the BoE revised its outlook. It now sees a greater than 50% chance of unemployment reaching the 7% threshold by Q3 2015 compared with the August forecast of Q2 2016. The BoE also revised up 2014 growth to 2.8% from 2.5% previously and sees inflation falling below its 2% target in Q1 2015 in part due to GBP's gains. It is a positive mix for the BoE and will enable it to stay the course on policy, though should GBP fall away it could have consequences in the medium term. Carney reiterated that the 7% threshold on employment was a "staging post" not a trigger, which means policy could still stay easy depending on the overall economic backdrop. The comments should be GBP supportive overall and there is enough in the report to dampen any speculative run on market rates as the BoE said its forecast is based on market expectations of first rate hike in Q1 2015. Earlier in the session the unemployment rate fell to 7.6% after another 41.7k drop in the claimant count.

    [USD, CHF]
    CHF remained narrowly mixed amid the recent contrasting flows via EUR and USD. USD-CHF is marking time near 0.9170 after it pulled back from last week's 0.9250 peak to 0.9155-60 on Tuesday. The impact on EUR-CHF was muted as EUR-USD moved higher. The dollar is still expected to trade on the firmer side amid a rise in Fed taper expectations, though a period of sideways movement may influence in the near-term before trending higher again. The SNB indicated that it would monitor the impact from the ECB rate cut. However, so far EUR-CHF has been well supported by local names into 1.2300 and below, which will offer encouragement to the SNB.

    [USD, CAD]
    USD-CAD put in a two-month high over 1.0505 on Tuesday during the European morning amid the greenback's generally firmer tone in the aftermath of better U.S. data last week. However, further gains were thwarted by reported offers from 1.0510. With bids in place from 1.0480, the pairing found itself back in a narrow, though higher trading band for now. There was little in the way of data to drive prices yesterday, so focus may continue to remain on U.S. yield performance and risk levels over the course of today's session.

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