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By XE Market Analysis September 4, 2013 7:46 am
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    XE Market Analysis: North America - Sep 04, 2013

    The dollar traded on as easier footing amid rising expectations that the U.S. will launch a military strike against Syria. In Asia most of the action went through AUD, which broke above 0.9100 after Australia Q2 GDP rose 0.6% q/q from 0.5% in Q1 and extended to 0.9150 in Europe. GBP benefited from a jump in U.K. services sector PMI in August, which lifted Cable over 1.5600 and EUR-GBP moved into 0.8430. Eurozone services PMI remained in expansionary territory, Eurozone Q2 GDP was confirmed at 0.3% q/q and the annual rate was revised up to -0.5% and retail sales from the region rose 0.1% m/m in July, but was revised down to -0.7% in June. This provided the EUR with a modicum of support as long-term moving averages provided a prop in early trade.

    [EUR, USD]
    EUR-USD ran into selling pressure on upticks. There was early firmness as a downturn in U.S. yields encouraged EUR-USD demand, along with a pick up in Spanish services activity for the first time in 26 months. The initial optimism was dampened by Italian PMI, which only improved a fraction, but German and French readings were revised up. Overall, the Eurozone reading was revised down. EUR movement over the next 24 hours could be subdued due to the ECB policy outcome and developments related to Syria. It is looking more likely that the U.S. will take action after U.S. President Obama got backing from both sides of the House. Technically, EUR bias is still skewed to lower levels, but good support emerged into key long-term moving averages between 1.3145 and 1.3135 on Tuesday and this is providing a prop ahead of option exposure at 1.3100.

    [USD, JPY]
    USD-JPY pulled back from 99.80 in early Europe. Japanese banks picked up fresh exporter offers after the Tokyo close and this weighed, along with the downturn in U.S. yields overnight. Data out of the Eurozone and U.K. is still supportive for EUR and Cable, which is playing a minor role in capping the USD advance today. Developments in Syria will be watched closely again as U.S. President Obama appeared to gain the support he needs to take limited military action. The dollar has been sensitive to signs of an escalation in Middle East tensions, though fundamentals are still a long-term positive for the dollar. We anticipate dollar buyers into 99.30 and 99.00-10. The 100.00 level is still being heavily defended by a combination of technical resistance, corporate hedging and option flows.

    [GBP, USD]
    GBP firmed up after a surge in U.K. services PMI. Cable moved over 1.5600, but actual gains over the release were fairly muted and amounted to just 20 pips. We think that it is a case of market positioning, with short term accounts long of GBP after very healthy manufacturing and construction PMI data earlier in the week. EUR-GBP has moved back under 0.8450, though further losses could be contained by chart support in EUR-USD and corporate hedging, which was prevalent on Tuesday. Once buy stops were filled at 1.5610 it extended to 1.5630.

    [USD, CHF]
    CHF losses were limited by Syrian risk. USD-CHF stalled ahead of 0.9400 and EUR-CHF offers capped at 1.2350 at the European open. The pick up in risk appetite weighed on the CHF on Monday and Tuesday, but there was no wholesale liquidation of positions. The risk of action against Syria also rose overnight as President Obama got backing for limited military action. Ranges are still narrow though in the FX space as price action is caught between encouraging economic fundamentals and the churn in risk. The key for EUR-CHF in the near-term may come from the dollar pairings. EUR has found buyers ahead of long-term moving averages today and USD-JPY also pulled back from 100.00, which is guiding USD-CHF action.

    [USD, CAD]
    CAD$ rallied on the coattails of strong gains via AUD and NZD during the European morning. The USD-CAD move was compounded by dollar selling as the prospect of military action against Syria drew closer. USD-CAD filled in Asian backed support at 1.0500 and triggered stops on the way to 1.0480. Follow through was limited thereafter amid a general move out of risky positions, which also cut into oil price gains. USD-CAD's lack of progress over 1.0550 could cast doubt on the underlying uptrend though moves will continue to take their influence from USD flows and Syria.

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