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By XE Market Analysis September 10, 2013 6:19 am
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    XE Market Analysis: North America - Sep 10, 2013

    The dollar trended lower in Asia after it extended losses after yesterday's European close. However, consolidation set in during quiet European trade. Sentiment was positive overall as Syria tension dropped off as leaders consider Russian proposals that could see Syrian chemical weapons come under international control. China economic data saw industrial production and retail sales beat expectations, which suggests that China has overcome the soft patch and is now picking up again. There were only second tier Eurozone releases to digest and these were disappointing. French industrial production missed expectations by a wide margin and Italian Q2 GDP was revised down. EUR experienced sideways movement around 1.3250, while USD-JPY cleared 100.00 on good U.S. account demand in late Asia. Cable struggled over 1.5700 on real money hedging and AUD-USD consolidated after it reached 0.9289 highs on more position reduction.

    [EUR, USD]
    EUR-USD topped out amid strong offers from 1.3280, which held the topside after Monday's European close and also capped after today's European open. EUR edged out highs of 1.3275 in early trade due to a rise in risk appetite, which triggered EUR-JPY demand. The short term trend should encourage dip buying. However, EUR-USD's move up to its best levels since August-29 is fueling macro fund supply and there is also Asian selling going through. Only second Eurozone data was released today, but this still didn't do the euro any favours either. French industrial production came in much weaker than expected at -0.6% m/m and Italian Q2 GDP was unexpectedly revised down to -0.3% q/q. EUR buyers between 1.3240 and 1.3220 should slow the downside and there are more bids noted across 1.3200.

    [USD, JPY]
    USD-JPY traded back over 100.00 on U.S. account demand, which also went through EUR-JPY. Leverage accounts also sold JPY amid reduced risk of military action against Syria as leaders debate Russian proposals to put Syria's chemical weapons arsenal under international control. China data boosted sentiment, while Japan's Economy Minister Amari said that PM Abe had instructed him to compile an economic package by the end of September. The decision is part of the process that will see the new sales tax hike from next April. USD-JPY upside movement from here may slow due to heavy exporter offers from 100.05-10 and option related interest ahead of 100.50. Meanwhile, EUR-JPY's move above 132.50 has seen a U.S. house tip much higher levels if it managed a N.Y. close above August-23 highs at 132.42.

    [GBP, USD]
    GBP gains were limited. Cable stalled just above 1.5710, leaving it short of yesterday's 1.5733 top, as real money names and an Asian account were early sellers. There was conjecture that outstanding option triggers at 1.5750 may have encouraged some long-term accounts to hedge, though corrective action remains shallow. EUR-GBP in in better shape after 0.8400 held on Monday and it headed back over 0.8450 in line with broad based EUR gains. Since last week's move under 0.8400, which were the weakest levels since late January, there is a notable pick up in corporates taking advantage of cheaper levels. EUR-GBP is expected to maintain a steadier tone, while Cable is still on course to challenge previous trend highs near 1.5750 ahead of Thursday's testimony from BoE Governor Carney to the Treasury Select Committee. Carney is expected to be scrutinised on the rise in market rates and other issues related to forward policy guidance.

    [USD, CHF]
    USD-CHF is looking more fragile since Friday's NFP data. During Monday's session it extended to 0.9301 lows, which were the lowest levels since the start of the month. A break of September-1 lows of 0.9298 is expected to trigger a bout of stop loss selling and this could fuel a more sustained period of dollar losses. Most of the movement since the start of the week came on a re-think on Fed tapering after Friday's NFP release. The Fed are still likely to carry out a small symbolic taper, but it may now be fully priced in and this is likely to be one of the reasons why the dollar is pulling back from recent highs.

    [USD, CAD]
    USD-CAD traded on the heavy side after it sliced through bids between 1.0385 and 1.0370 on Monday and extended to the 1.0360 area. The downturn was a symptom of general dollar selling, although CAD$ has also benefited from a resurgence in commodity bloc demand and better fundamentals. Yesterday's strong Canadian permits outcome also followed last week's better employment reading. Corporate bids are reportedly sitting from 1.0350, which slowed further downside, but trendline support is looking vulnerable and more stop loss selling could go through. Selling into strength looks like the favoured strategy now.

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