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By XE Market Analysis November 21, 2013 11:15 am
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    XE Market Analysis: North America - Nov 21, 2013

    The USD held on to firmer levels and EUR remained heavy following yesterday's contrasting central bank policy news. News that ECB is considering a -0.1% deposit rate if more easing is needed caught the market long of EUR near 1.3550 and the sell off was reinforced after the FOMC minutes revealed discussions about policy tapering. There was early EUR selling in Europe on French PMI weakness, but German data beat expectations, leaving the pair net unchanged at 1.3440. USD-JPY was buoyant after it moved into the 101.00 region on fund demand and JPY-cross strength. RBA Governor Stevens talked AUD lower and it broke to trend lows just in front of 0.9250 barriers. Overnight, the BoJ left policy unchanged and China November HSBC flash PMI reading eased to 50.4 from 50.9 previously as new export orders fell.

    [EUR, USD]
    EUR-USD forecasts for 1.3295 are filtered through after yesterday's negative deposit rate talk and the latest French PMI weakness. The 1.3295 level is the low that followed the ECB's 25 bp cut. However, it did not stay lower for very long as corporate flows, sovereign and commercial activity accelerated. Since the European session got underway there was an early test on 1.3400, which met very good support on dips, leaving the pair largely unchanged intra-day around 1.3440. German PMI came in on the firmer side, which offset the earlier French disappointment. We suspect that market participants will trade this pair cautiously given the lack of sustained progress in either direction. The charts point lower, but given the chop on shifting central bank expectations it may be better to fade rallies.

    [USD, JPY]
    USD-JPY maintained a bid tone throughout, leaving it in close proximity to 101.00. The USD-JPY uptrend was reinforced by Fed taper expectations on Wednesday, while GPIF recommendations on portfolio holdings were also positive for the JPY crosses, leaving near-term risk on higher levels. Standing in the way of further dollar upside are very large 101.00 barriers and $1 bln worth of plain vanilla strikes. There is dip buying from fund names while option accounts are also noted near 100.75 to 100.65 amid more expiry congestion and flows related to increased topside hedging. Meanwhile, EUR-JPY is firm at 135.50 versus an early European session dip to 135.00, which compares with early Asia lows around 134.20.

    [GBP, USD]
    GBP consolidated, with little reaction from the latest government borrowing numbers, which came in close to expectations. Chancellor Osborne was expected to receive a boost this week due to a flood of corporate tax payments and profits from the government's sale of Royal Mail shares, but the ONS said the sale of Royal Mail should not reduce headline government borrowing. Cable moved back over 1.6100 as the pace of dollar buying dropped off, while EUR-GBP remained heavy close to 0.8330 after yesterday's downturn on EUR selling.

    [USD, CHF]
    EUR-CHF drifted into the 1.2310-30 area as EUR-USD traded heavily. USD-CHF shot over 0.9190 from near 0.9100, inconcert with EUR-USD's dive, and following the FOMC minutes. For the most part, activity in the swissy has been uneventful since the SNB warned that it was digesting the impact from the recent ECB rate cut. This has been enough to deter heavier demand for the CHF and it looks like this theme will continue in the near-term.

    [USD, CAD]
    Bigger picture, USD-CAD remains a range trade, and could continue to be influenced by Fed taper expectations, and the incoming U.S. data. To illustrate this theme USD-CAD traded a range of just 1.0438 to 1.0474 on Wednesday. Bids are lined up from 1.0430 to 1.0400 currently, while offers kick in at 1.0480 and extend through 1.0500. Large stops area building through 1.0520.

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