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By XE Market Analysis October 1, 2013 7:06 am
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    XE Market Analysis: North America - Oct 01, 2013

    The dollar took a dive in early London trade after non-committal trade during the Asian session following the failure of Washington to compromise on a government spending bill or a Continuing Resolution. However, follow-through proved limited with markets taking the view that the partial shutdown of government won't prove too detrimental to growth, though there still a lot of potential obstacles, particularly concerning the debt ceiling showdown later in the month. The dollar recouped some of its lost ground as European equity markets managed to claw out gains. Most Asian stock markets managed to close with modest gains too, though oil, copper and other commodity markets were modestly lower, and gold higher. EUR-USD was settled in late London AM session around 1.3550 after making 1.3588 earlier, which is an eight-month high. GBP-USD saw a similar price action and USD-JPY traded lower, back to sub-98.0 levels. Encouraging data out of Australia and Japan offset a downward revision in official China PMI data for September, while European PMI numbers were mixed. The data encouraged AUD-USD to a one-week high.

    [EUR, USD]
    EUR-USD settled around 1.3550 after making 1.3588 earlier, which is an eight-month high that was made early in the London session. EUR-USD had smashed through recent consolidation highs around 1.3565, and we now target a re-test of the 2013 high of 1.3711 on an technical extension of the recent pennant formation, though there is a caveat presented by the Italian political mess. A big option barrier level is reported to be at 1.3600, which may prove to be a tempting target after the New York open. Support is noted at 1.3535-40 and again at 1.3520.

    [USD, JPY]
    USD-JPY remains in a bear-trend, with a tend resistance line at 98.65, and with the 50-day moving average just above here at 98.67. Trend line support comes in at 97.20, where we think the market is biased to. Japanese data were solid today, and follows the rise in CPI last week, which pointed to end to the yen's roles as a funding currency for carry trades. The BoJ's quarterly Tankan index for big manufacturers rose to 12 in September, the best since 2007, from 4 in June, which was about twice as strong as anticipated by both ourselves and markets. Japanese PM Abe is also due to unveil the government's new stimulus package later. Abe earlier confirmed the planned sales tax increase to 8% from 5%, to be implemented next April.

    [GBP, USD]
    Sterling settled in the low 1.62s versus the dollar after hitting 9-month high of 1.6260 against both the dollar and euro. EUR-GBP ebbed back to around the 0.8350 mark after sinking to 0.8332. In Cable, the break of barrier options and trigger of stop orders through 1.6200 added fuel to the up-move earlier, and the pair looks very bullish on technical signals, pointing to a target of 1.6500. GBP has taken on a newly rediscovered role as safe haven currency, thanks to the recent economic revival and fading dovishness of BoEspeak. Today's U.K.. September manufacturing PMI unexpectedly ebbed to a headline of 56.7 after 57.2, which, although contributing to some selling of the pound earlier, marks a consolidation near two-and-a-half year peaks and signals brisk expansion in the sector. The PMI survey also showed that job creation grew to a 28-month peak. The September construction and services PMI reports later in the week should be supportive of sterling's bull run.

    [USD, CHF]
    EUR-CHF has continued to trend lower, driven by the political uncertainty in the U.S. that is feeding a Swiss currency supportive risk-off theme in global markets. The cross has descended from 1.2400-plus levels two weeks ago and has traded to a low of 1.2215 today. Still above the SNB no-go zone near 1.2000, but the speculative part of the market will be reluctant to establish short positions through 1.2200. SNB's Jordan reaffirmed last week that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals. Should risk aversion continue, we would expect EUR-CHF to remain heavy and trade toward 1.2000, though, and similar to previous episodes since the currency limit peg was introduced in September 2011, we would fully expect the SNB to make a successful intervention to cap Swiss currency strength.

    [USD, CAD]
    USD-CAD again found buyers around 1.0300, basing at 1.0297 in London, before inching back toward 1.0315. The pairing managed a meager 20 point gap up over 1.0320 at the Asian open, though range trade has been persistent. Canada GDP rebounded 0.6% in July, better than expected (median +0.5%) following the 0.5% drop in June, which took USD-CAD to 1.0275 lows. Inside of 1.0270 and 1.0340, two-way flows should continue, and the pairing headed back toward 1.0300 in light afternoon trade.

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