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By XE Market Analysis October 29, 2013 6:54 am
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    XE Market Analysis: North America - Oct 29, 2013

    The dollar maintained a supportive tone overnight, which was reportedly due to month-end related demand and forced EUR towards 1.3750 and left Cable under 1.6100. European trade was relatively quiet. The only notable data releases were U.K. mortgage approvals, which hit five year highs. Activity in Asia was dominated by a sharp drop in AUD-USD amid comments from RBA Governor Stevens, who said that AUD was likely to be materially lower in the future and also gave a fairly subdued economic outlook. USD-JPY's upside was limited on JPY-cross weakness as stocks in the region were weighed by earnings. Japan data was broadly positive and included a 3.1% y/y rise in retail sales. Household spending rose 1.6% m/m and 3.7% y/y, which was much stronger than expected, while unemployment dipped to 4%. The PBoC also provided liquidity for the first time in two-weeks via a short term operation in CNY 13 bln, but it was only a very limited operation in the 7-day repo and pales in comparison to the drain in funds over the last two weeks.

    [EUR, USD]
    EUR-USD started the session under 1.3800, which encouraged short term selling on upticks. Heavy losses in AUD-USD in Asia fuelled light follow through interest as intra-day accounts headed back to the USD and forced EUR into 1.3755 in Europe. Follow through selling was absorbed by Asian sovereign names, but month end USD demand kept the upside limited throughout the European morning session.

    [USD, JPY]
    USD-JPY and the JPY-crosses traded on the heavy side amid the risk-off tone and heavy unwinding of AUD-JPY and GBP-JPY longs. The former was weighed by comments from RBA Governor Stevens and it fell from 93.50 to 92.70, while GBP-JPY tumbled from 157.70 to 156.75 as GBP continued to experience repositioning by fund names as U.K. data shows signs of moderation. Japanese data did not help the equity market tone and specs concentrated on position adjustment. USD-JPY edged off the 97.70 area and move into 97.45, where domestic banks have decent bids and these are layered into the 97.00 region.

    [GBP, USD]
    GBP was pressured from the London open following more losses overnight. After Monday's pullback from over 1.6200 and subsequent U.K. data weakness there was a notable pick up in long liquidation. Adding to the sterling downturn was a persistent bid in EUR-GBP as short term accounts key off Friday's close above the 200-dma. There was real money supply on upticks on Monday, but once these flows ran their then European names were steady buyers and the cross is now firmly above 0.8550. In Asia, Cable did run into natural demand into the 1.6060 region, though position traders and proprietary accounts have faded moves into 1.6100-20 since the London open. Losses will accelerate on a break of 1.6050.

    [USD, CHF]
    USD-CHF gains have underpinned EUR-CHF. The dollar pairing traded out of 0.8950 in early Europe and pushed up through 0.8980, which enabled EUR-CHF to trade at its best levels in a week. Most of the action since late Asia has been symptom of reported month-end dollar demand as stocks provide mixed leads due to earnings season. Asian markets lost ground, but in Europe markets are marginally higher. If USD-CHF breaks 0.9000 in the very short term then this will go some to dampen the underlying dollar bear trend.

    [USD, CAD]
    USD-CAD was steady overnight, trading inside a 1.0425-55 band. Domestic names were sellers into the highs, with talk of corporate interest heard. Bids are in place from 1.0400, with sellers seen at 1.0470, and barrier options at 1.0500. Downside movement is likely to be limited as the recent break higher will fuel short term dollar buyers on dips.

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