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By XE Market Analysis November 18, 2013 6:27 am
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    XE Market Analysis: North America - Nov 18, 2013

    The dollar consolidated. The EUR was slightly firmer intra-day, leaving it near 1.3500 as last week's dovish Yellen remarks continue to reverberate, while USD-JPY backed from 100.50 barriers as Japanese corporate flows picked up. The market welcomed China's ground breaking reforms, which covered 60 different points and included an end to the one-child policy. IPOs will now be put in the hands of the market rather than government and it also planned to speed up the process of interest rate liberalisation and increase private investment in state controlled industries. Meanwhile, the Japanese press suggested that the government will compile the second part of its growth strategy next June, which could coincide with more BoJ stimulus after the planned April sales tax hike comes into effect. The European press highlighted comments from ECB's Praet, which echoed last week's dovish remarks, but ECB's Coene did not think it should cut interest rates further. Nowotny also said that the ECB has a number of measures to fight low inflation.

    [EUR, USD]
    EUR-USD found buyers on dips, which carried it back over 1.3500 versus early Asia lows near 1.3475. The bias from short term indicators and the daily chart is still with the topside and this encouraged buyers. ECB comments in the weekend press did not represent a new stance, with Praet reiterating his dovish views, while Coene was against another interest rate cut. It is notable that EUR has not managed to sustain lower levels even with the ECB's rate cut more than a week ago as the impetus shifted to Fed policy under Yellen's leadership. There is still conjecture that EUR could be supported into the year-end on repatriation flows as banks contend with next year's stress test. Corporate hedging and option flows have also been a feature on the downside since the ECB cut rates.

    [USD, JPY]
    USD-JPY registered a modest correction from Asia highs of 100.39. It eased throughout the Asia session as option barriers at 100.50 fuelled profit taking by macro funds and an increase in exporter selling. There were option related buyers and importers near 100.00 for a time, but European names triggered a move to intra-day lows at 99.80. The underlying trend is still encouraging dip buyers and there are also decent size option maturities today. USD 500 mln are rolling off at 99.75 and more that USD 1 bln at 100.00. Note, there are some proprietary names that are buying downside strikes currently, perhaps due to USD-JPY's track record of disappointing on the topside.

    [GBP, USD]
    GBP has remained well supported following last week's strong U.K. labor market data and upwardly revised BoE forecasts of U.K. GDP, which were announced in the release of the BoE Inflation Report. Cable is marking time near 1.6150 after it was underpinned from 1.6125 overnight. Markets are bringing forward the expectation for the eventual raising of the repo rate from its prevailing record low of 0.5% (in place since March 2009). We suspect that the BoE's policy mix will draw in more long-term investor money and this will limit downside potential. The next domestic focus comes with the CBI industrial trends survey, next Tuesday, and the release of the BoE MPC minutes to the early November policy meeting, due Wednesday. We expect both to be net-supportive for sterling and could see Cable revisit late October trend highs near 1.6250-60.

    [USD, CHF]
    The CHF has been weakening versus both the EUR and USD, as should be expected during periods of risk-on, the current bout of which has been fuelled by dovish remarks by U.S. Fed Chairperson-designate, Yellen. This will be good news for Swiss policymakers given the renewed drop in CPI and PPI numbers into negative territory, developments which in themselves will maintain the SNB's commitment for ultra-loose monetary policy and its currency cap. EUR-CHF resistance is marked at 1.2360 and 1.2375 (the Oct-15 high). Trend support, which has been establishing during the recovery from the late-September lows, comes in at 1.2300 to 1.2280. We'll need to see risk appetite hold up if EUR-CHF is to recovery the 1.2400 handle. Bullish prospects for USD-CHF seem good given the Fed's renewed commitment to dovish policy. We look for am eventual recovery to the 0.9250 area. .

    [USD, CAD]
    USD-CAD followed the greenback's softer tone, marking time under 1.0450 amid Friday's move lower. The move under 1.0450 left a heavy tone in Asia, though buyers were still prevalent into 1.0415-20 and there are order book bids into 1.0400-10. Sellers have lowered offers from the 1.0470-80, while 1.0500 is still popular for corporate hedging flows.

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