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By XE Market Analysis October 14, 2013 6:40 am
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    XE Market Analysis: North America - Oct 14, 2013

    The market was very quiet due to holidays in Japan, Hong Kong, U.S. and Canada. Weekend developments were mainly negative, though the impact was muted due to a lack of market participation, which left sideways movement in FX. The dollar was a touch lower overall, leaving EUR above 1.3550 and Cable just shy of 1.6000. U.S. budget talks broke down just three days before the debt ceiling deadline and the U.S. government remains closed, though there is still hope that a deal will be reached and a U.S. default is not the baseline scenario. Meanwhile, China's trade surplus narrowed sharply to $15.2 bln after September exports fell 0.3% y/y in part due to a slump in exports to South East Asia, which suffered over the summer months amid Fed taper risk. In Europe, Eurozone industrial production posted a stronger than expected 1% m/m rise.

    [EUR, USD]
    EUR-USD experienced sideways movement. An early move up to 1.3570 ran its course and it headed back to Asia Pacific opening levels at 1.3545. Interest out of Europe is limited to intra-day accounts jobbing the range and light option related flows. ECB's Bonnici said it will cut interest rates if needed, but the impact would be limited as rates are already low. Bonnici added it was also ready to cut the deposit rate to negative, but said such a move could have negative consequences. The remarks are generally in line with the ECB's easy policy stance and ECB's Coeure also said in the press that the ECB will ensure that monetary conditions remain appropriate, adding that the accommodative condition will be maintained for an extended period. Overall, there isn't much for intra-day accounts to get their teeth into in holiday thin trade. We anticipate narrow trading ranges until there is a breakthrough in the budget talks in Washington D.C.

    [USD, JPY]
    USD-JPY fell in Asian trade, dipping from just over 98.50 to 98.10 on leverage selling after weekend negotiations between the White House and the Republican broke down. Senate Leader Reid was still optimistic that a deal could be reached, though the tone remained fragile. USD-JPY's downside ahead of 98.00 was underpinned by Japanese bank customer flow and light retail interest, but it chopped mid-range near 98.30 for a large part of the Asia session and remained rangebound in Europe. The JPY crosses consolidated after last week's heavy retail interest and fund related demand, leaving EUR-JPY above near 133.30 and AUD-JPY just above 93.00.

    [GBP, USD]
    GBP is mixed in Europe as holiday thin trade saps market interest. Cable ran into a few dip buyers ahead of 1.5950 overnight after 1.5900 held late last week. Option flows are noted underneath the market and corporate accounts still see good long-term value at current levels. Cable traded into 1.5990 after the London open, but has edged lower as order book offers at 1.6000-20 from U.K. clearers capped the advance. EUR-GBP rejected last Friday's move above 0.8500 and eased into the 0.8480 area today. A supranational account has sold into strength for the last two sessions, though since EUR-GBP bottomed out under 0.8350 in early October it has tended to favour firmer levels. There is nothing to focus on from the U.K. today, leaving the impetus to come from D.C. Meanwhile, potential M&A related flows could go through if a deal to sell to RBS's arm of Citizen's goes through. The Sunday Times said Toronto Dominion could be interested and may be as worth as much as GBP 8 bln.

    [USD, CHF]
    EUR-CHF broke the top of the recent range after buy stops gave way at 1.2355. Local name demand picked up from the 1.2340 area after the downturn from 1.2350 in Asian trade. The move out of risky positions in thin Asia trade did not see any follow through in early Europe, which encouraged short term names to fish for stops higher up. In spite of the lack of progress in D.C. on the weekend USD-CHF has still found buyers under 0.9100 and support remains in place down to the 0.9050-60 region. Swiss PPI came in at 0.1% from 0.2% previously, which was slightly weaker than expected. The impact was muted, but backs expectations for policy status quo in Switzerland. SNB's Jordan reiterated the importance of the CHF cap on the weekend and there are expectations that it is likely to remain in place until the latter part of the 2014.

    [USD, CAD]
    USD-CAD headed back into the 1.0340 region versus 1.0370 at the Asia Pacific open. The downturn in the dollar pairing came amid news that the latest debt ceiling talks in Washington had broken down. Bids between 1.0350 and 1.0330 came under a bit of pressure over the course of the session. However, momentum was fairly slow as markets were much thinner than usual due to today's market holiday in the U.S. and Canada. On the topside offers are noted from 1.0380 to 1.0400.

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