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By XE Market Analysis September 17, 2013 6:15 am
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    XE Market Analysis: North America - Sep 17, 2013

    The FX majors consolidated overnight as the focus turns to Wednesday's FOMC policy outcome. Some form of tapering is priced in, as well as dovish forward guidance. The Larry Summers withdrawal from the Fed chair candidacy also raises the prospect of a Yellen appointment, which is viewed as more likely to result in a gradual withdrawal of policy stimulus. Against this backdrop intra-day accounts played the range. EUR found buyers into 1.3325 and received mild support as German ZEW improved. The breakdown in Eurozone current account data was generally EUR friendly, but trade data revealed a decline in exports and indicated weak Q3 growth. GBP worked off some of the froth from recent sessions after U.K. CPI met expectations at 2.7% and PPI saw an easing up in price pressures.

    [EUR, USD]
    EUR-USD edged higher as support at 1.3325 held in early trade. The dollar held up in Asia, but overall a range trading theme continued and intra-day accounts bought into good order flow from 1.3325. Eurozone data was mildly supportive. The Eurozone current account surplus declined, but the breakdown revealed that investment inflows remained favourable for the EUR. German ZEW came in at 49.6, which was better than expectations and helped EUR up to intra-day highs near 1.3370. A wall of good offers capped from 1.3380 yesterday to 1.3400, where a large option barrier is tipped ahead of August-23 highs near 1.3410.

    [USD, JPY]
    USD-JPY was largely stable just ahead of 99.00. There was limited interest in either direction after Japanese accounts closed the gap from Monday's Asia Pacific open to trade at 99.36 highs. Offers from 99.40-50 held and it drifted back to the 99.10 region by early Europe. There are well over a yard of option strikes between 98.90 and 99.10 for today's N.Y. cut and these have influenced as larger positioning is kept to a minimum ahead of tomorrow's FOMC outlook. The near-term bias is skewed slightly towards the downside after last week's failure to sustain 100.00 and yesterday's subsequent move towards 98.60.

    [GBP, USD]
    GBP eased a touch on U.K. inflation data. U.K. CPI met expectations at 2.7% y/y, while output PPI was a bit weaker than expected. Cable edged back into 1.5905 from 1.5930-35 prior to the release and EUR-GBP moved over 0.8390 from around the 0.8380 area. GBP was weighed as two out of three of BoE's policy knockouts in the new forward guidance strategy is contingent on the inflation outlook. This may encourage further GBP weakness as prices were starting to look overstretched on Monday. This has led to a Cable pullback from trend highs of 1.5963, while EUR-GBP has met decent corporate support since it hit 0.8356 lows last Friday. Ahead of tomorrow's FOMC outlook the BoE will release the minutes of the September MPC meeting. However, it should not add anything new after last week's testimony to the Treasury Select Committee.

    [USD, CHF]
    The CHF is in a holding pattern, with flows on the low side ahead of key event risks on Wednesday and Thursday. USD-CHF is trading just ahead of 0.9250 ahead of tomorrow's Fed outcome, where some form of policy tapering is anticipated. However, given the soft patch of data into the decision only a relatively small move is expected and dovish forward guidance will remain. The SNB are also meeting on Thursday and should maintain a steady hand, which will include the EUR-CHF lower limit at 1.2000. Since the middle of last week the CHF drifted higher, mainly on investor nervousness over rising market rates. However, there is mild optimism over the outlook for asset markets into Q4, which should fuel leverage position. This is based on expectations that the Fed are likely to remain dovish, while other central banks have also reaffirmed low rates for the foreseeable future.

    [USD, CAD]
    USD-CAD remained stable near the 1.0320-30 area throughout the overnight session. Yesterday's move lower ran out of steam and this led to more sideways action overnight. The downside was supported on Monday by real money accounts and the subsequent move into the 1.0330 region reflected a dollar recovery elsewhere. Ranges are likely to remain tight into Wednesday's Fed decision. Offers are tipped towards 1.0340-50, but the downside looks supported now from 1.0280-90, which is protecting more sell stops lower down.

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