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By XE Market Analysis September 12, 2013 6:53 am
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    XE Market Analysis: North America - Sep 12, 2013

    The dollar edged up in early Europe, but overall it consolidated at easier levels following Tuesday's correction. Setting the tone overnight was an extended USD-JPY move into 99.20 as weak longs bailed following yesterday's failure to sustain 100.00. This kept EUR-USD close to 1.3300, although upside progress was capped by resistance at 1.3330, EUR-JPY supply from a Middle Eastern account and EUR-GBP hedging related to EU subsidies. GBP experienced a muted reaction over the BoE MPC testimony to the Treasury Select Committee. The BoE defended forward policy guidance and also played down the evolution in market rates, which it said was a symptom of better fundamentals. The CHF edged higher as equity markets stalled and AUD remained heavy after it plunged in Asia on a much weaker than expected employment reading.

    [EUR, USD]
    EUR-USD edged back through 1.3300 as dollar demand picked up a bit from the London open. The EUR move in Asia was triggered by easier U.S. yields, but Asian commercial offers capped ahead of resistance at 1.3330. Short term indicators are mildly favourable for the EUR and this should encourage dip buying in the very near-term. However, we doubt there is a big commitment to add fresh long positions ahead of next week's FOMC outcome and momentum should remain limited.

    [USD, JPY]
    USD-JPY found support after the correction from over 100.00 extended to 99.20 by today's London open. A negative close under 100.00 encouraged a reduction in weak long positions. Heavy AUD-JPY selling added traction, along with a slightly disappointing Japan core machinery orders data. USD-JPY ran into a decent Japanese bid at 99.20, related to long position building, while today's large option expiries at 99.50 have also underpinned. Proprietary accounts are still playing the long side, particularly out of Asia, but in Europe there is an air of scepticism. Since it broke down from mid-May to mid-June the upside in USD-JPY has been a disappointment. Exporter hedging has now picked up again over 100.00 and the market is very long of gamma towards 101.00.

    [GBP, USD]
    GBP held steady as the BoE MPC testified before the Treasury Select Committee. Cable pulled back from 1.5830 in early trade to 1.5790 ahead of the testimonies and is now stable near 1.5820. There are more magnet expiries at 1.5800 today and fairly large exposure for tomorrow, which is expected to encourage selling pressure on upticks. EUR-GBP is being weighed by macro fund selling and talk of some early flows related EU hedging, leaving it over 0.8400 from 0.8425. The BoE basically reiterated its forward policy guidance and expressed the reasoning behind the knockouts, which were put in place to ensure the BoE maintains credibility. The BoE did not sound too worried about the rise in market rates and how the economy fares was deemed to be more important rather than the shift in expectations.

    [USD, CHF]
    EUR-CHF experienced limited upside as equity markets came under pressure. Activity was still quite subdued as the market waits for next week's FOMC outcome. There is still some uncertainty regarding Syria, but tensions have faded as leaders pursue the diplomatic route for now. EUR-CHF edged back into the 1.2370-75 area in line with EUR-USD, which was weighed by Asian commercial flows and talk of EUR-JPY selling from a Middle Eastern name. The EUR-CHF downside was absorbed to a degree by a USD-CHF move back over 0.9300, but both the cross and the dollar pairing could struggle as recent swissy shorts are pared back into pending event risks next week, which also include the SNB policy decision.

    [USD, CAD]
    USD-CAD maintained downside pressure and edged out lows of 1.306 in Asia. Light buying interest came back in during the European time zone. The USD picked up a touch and this lifted it back through 1.0320 and there was also speculation that a short term option barrier could be in place at 1.0300. A better risk backdrop could leave USD-CAD vulnerable if support at 1.0300 gives way. Stop and reverse positions are building through 1.0290, which is just under August-15 lows of 1.0294. Selling into strength is favoured in the short-term.

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