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By XE Market Analysis October 28, 2013 5:41 am
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    XE Market Analysis: North America - Oct 28, 2013

    The dollar consolidated overnight just ahead of recent trend lows, leaving EUR near 1.3800, Cable close to 1.6200 and USD-JPY at 97.50. The macro leads were limited and the focus is already on Wednesday's FOMC decision, which could prove to be an non event amid the U.S. government shutdown earlier in the month. In Europe, Italian business confidence rose to 97.3 in October from 96.6 previously, which was better than expected. In the U.S. session, the impetus will come from earnings results. Merck will release earnings before the open and Apple is also due amongst others later in the session. From a technical perspective appetite to sell the dollar on upticks is still the main driver, though both EUR and Cable looked a little toppish last week ahead of 1.3850 and 1.6260, respectively. USD-JPY also rebounded out of 96.90 and has benefited from retail investors demand for the JPY crosses.

    [EUR, USD]
    EUR-USD started the session close to 1.3800. However, it was unable to retest last week's top near 1.3830 amid an overhang of sell-orders that are still protecting outstanding barriers at 1.3850. The downside was underpinned throughout though due to a bullish technical backdrop and there was positive directional guidance from EUR-JPY and EUR-CHF, which benefited from equity market gains.

    [USD, JPY]
    USD-JPY movement slowed around 97.50 since the London open. The market has been disrupted in London due to a hurricane force storm and many market participants are unlikely to make it in until late morning. Option expiries at 97.50 have exerted an influence in the absence of other leads. Overnight, there was a small move up from 97.40 to 97.75 in early trade as JPY was weighed on by reports that tensions between Japan and China picked up over the Senkaku Islands. PM Abe has hardened his stance against China after a recent meeting with the U.S. Meanwhile, BoJ deputy governor Iwata also said BoJ would continue to buy bonds until it reached its inflation target. USD-JPY could not sustain higher levels though due to underlying dollar heaviness and good corporate hedging. The JPY crosses were supported by positive risk appetite, which kept USD-JPY's downside limited throughout and was an early driver in thin European trade.

    [GBP, USD]
    GBP demand has gone through despite last Friday's EUR-GBP close above the 200-dma. London sources think this could point to more GBP selling in the coming sessions, but since the European open real money names have sat on the cross. Cable moved up from 1.6170 as a result and is now moving across the 1.6200 region. We suspect that movement on the Cable topside will remain limited after persistent failure to overcome offers from 1.6250-60 last week, which was also the case in late September and has led to speculation of outstanding option exposure. There is talk of 1.6275 barriers and confirmation that 1.6300 structures roll off later this week.

    [USD, CHF]
    USD-CHF is consolidating in quiet European trade. Last week it found support after 0.8900 barriers gave way. The bulk of the heavy lifting in USD-CHF from under 0.8900 came on Swiss name demand, which also enabled EUR-CHF to recover from the 1.2280 region back to 1.2350. The underlying dollar tone is still weak though and this may continue into Wednesday's FOMC decision, where a steady hand is anticipated. Given the USD-CHF influence on broader swissy movement further losses are likely to be limited in the early part of the week. Only a USD-CHF move back over 0.9000 would change the short-term picture.

    [USD, CAD]
    USD-CAD is holding firm just short of 1.0450 after it powered higher on Friday, rallying from 1.0410 to 1.0461 highs. Canadian names have faded the move, which we think was probably corporate related as USD-CAD has not traded at current levels since early September. The underlying trend is skewed to a 1.0500 test in the near-term, though options barriers are likely to be a feature on upticks.

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