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By XE Market Analysis October 4, 2013 7:02 am
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    XE Market Analysis: North America - Oct 04, 2013

    A quiet data calendar left the focus on events in Washington D.C., where the government shutdown moved into its fourth day. Speaker Boehner has said he is willing to do what is necessary to avoid default, which suggests beyond the heated rhetoric there is the political will to reach a deal before the debt ceiling deadline. However, the uncertainty stamped out any speculative activity, which kept the CHF and JPY supported. Flows into both currencies were reduced by an underlying central bank influence. There is a feeling that SNB have restricted the USD-CHF downside this week below 0.9000 and USD-JPY also met semi-official support under 97.00. The main mover in Europe was GBP after a sharp squeeze in EUR-GBP fed a broad based sterling correction.

    [EUR, USD]
    EUR-USD traded an extremely tight range near 1.3600. A lack of upside over 1.3630 in Asia led to early downside pressure. Losses in EUR-JPY from 132.50 to 132.10 saw EUR-USD drift into 1.3610, though further weakness was contained by EUR-CHF support under 1.2250 and EUR-GBP's move over 0.8450. The underlying EUR tone will remain positive until D.C. works through the impasse over the debt ceiling and also bear in mind that good support at 1.3450-60 has held since the September-18 rally. Any positive news flow out of the U.S., while likely to be USD positive may not shift the underlying trend. Longs are still targeting a move through 2013 highs above 1.3700, though progress looks likely to be slow due to heavy order congestion related to reserve management and outstanding options.

    [USD, JPY]
    USD-JPY experienced good two way flows over the Asia afternoon and after the European open. It still looks a little vulnerable near 97.00, but prominent Japanese support under 97.00 arrested the decline. BoJ's Kuroda said BoJ easing is enough to meet the BoJ's policy target, which suggests policy is on hold well into 2014. However, Kuroda and other BoJ board members have been open to more easing next year when the impact of the April sales tax hike is known. Kuroda also warned that he will respond to tail risk in reference to the situation in the U.S. The situation in D.C. will keep the pair on the heavier side, but prime Japanese names are keeping it underpinned. This is the closest that USD-JPY has traded to the 200-dma (96.63 today) since November last year and we think this could limit the downside and may explain talk of semi-official bids in the last three to four sessions.

    [GBP, USD]
    GBP selling was heavy from the European open after yesterday's EUR-GBP stop hunt over 0.8410 triggered a key day reversal on the daily chart and fed a broad based correction in GBP. Cable fell as fund names tripped stops through 1.6150, 1.6130 and 1.6100 and extended to 1.6060. The scope for further EUR-GBP gains also remains high after it broke 0.8450 amid an intensification of European corporate hedging, while option names have been picking up topside strikes since the ECB policy statement and presser on Wednesday. The cross is seen as a better play rather than the dollar majors due to events in D.C., which could shift rapidly and this also captures EUR upside potential. GBP is also due a more sustained correction after several weeks of upside pressure. We still think the Cable downside will be limited due positive U.K. fundamentals. However, Cable could correct towards 1.5950-1.6000 without doing much damage to the long-term uptrend.

    [USD, CHF]
    CHF gains remained limited. EUR-CHF met good demand on dips, lifting it above 1.2250, while USD-CHF gravitated back to the 0.9000 area amid prominent bids near 0.8980 after the London open. The CHF should still see a lack of sellers though until there are concrete signs of progress in the U.S. Talk emerged on Thursday that the USD-CHF downside was limited by demand related to SNB activity and this appears to be deterring heavier flows today, along with large option strikes at 0.9000. The SNB could be concerned that sustained USD-CHF break lower could destabilise EUR-CHF. The cross downside has also been slow since it found support near 1.2215 on Tuesday, where very good Swiss and German demand emerged ahead of option barriers at 1.2200.

    [USD, CAD]
    USD-CAD maintains a narrow range. The topside was capped on Thursday by a layer of corporate offers at 1.0340 and this eventually forced jobbers to turn positions. However, progress on the downside is being limited by bids between 1.0320 and 1.0300. We think this theme is likely to continue into the N.Y. open, though today's Canada Ivey PMI may inject a bit of volatility. We anticipate a rise to 55.0 from 51.0 previously. The USD-CAD topside is awash with corporate orders into 1.0360 and 1.0375-80.

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