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By XE Market Analysis September 25, 2013 6:14 am
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    XE Market Analysis: North America - Sep 25, 2013

    The G10 FX continue to trade narrow ranges in another relatively subdued session. EUR and GBP found a modicum of support against the USD in Europe as the downside held in both currencies following Tuesday's sell-off. There were very few fresh leads, but intra-day accounts were guided by USD-JPY's brief move under 98.50, which reinforced a heavier tone. European stocks edged higher after a mixed lead from stocks in Asia. However, the commodity bloc was weighed on, which left AUD near 0.9350 and USD-CAD over 1.0300. Confidence data from Germany and Italy came in on the firmer side, while the French reading missed expectations. Today's auctions from Italy saw a fall in refinancing costs. Meanwhile, the U.K. CBI retail sales volume hit the highest levels since June 2012 at +34 in September and was much stronger than expected.

    [EUR, USD]
    EUR-USD was underpinned as key chart support at 1.3450 held. The EUR downside came under pressure in Asia as intra-day accounts were guided by yesterday's negative close and an underlying USD-Asia bid. Since Europe has got underway there is no appetite to aggressively test lower levels and USD-JPY's move on stops through 98.50 provided a modicum of support. Confidence data has been a mixed bag. The German GfK consumer confidence reading beat expectations in September, but French business confidence came in on the lower side. EUR drifted up to 1.3490 after support held, though offers have been lowered into the 1.3500 area and increase in size near 1.3520-30. Yesterday's dovish sounding ECB comments continue to resonate and as banks repay previous funds from long term tenders there are growing expectations that ECB will act again into the year-end to increase liquidity.

    [USD, JPY]
    USD-JPY is gradually filling in bids. Equity markets remain subdued after four consecutive down days on Wall Street, which has capped momentum in Asia and Europe. Fed policy inaction and potentially fractious negotiations over the U.S. debt ceiling is working against the dollar tone. This has helped the European majors to a degree, but kept USD-JPY defensive. There is also negative guidance from U.S. yields, which have given back all of the post-Fed gains and this could see further Japanese support filled lower down. An early push under 98.50 triggered stops, but follow through was limited due to talk of institutional investor demand that is layered into 98.10.

    [GBP, USD]
    Cable firmed up after it found support from 1.5980 in early Europe and moved back over 1.6000. Yesterday's moderate correction stalled just under 1.5960 as good bids put a floor in place ahead of 1.5950. Position traders are still running with the topside though a period of sideways consolidation is probably well overdue since the push up from 1.5500 since the start of the month. Aiding the upturn is talk of long position building in GBP-JPY, which rallied out of 157.50 to 158.00, while EUR-GBP is still meeting offers into 0.8450 on specs that are anticipating seasonal hedging flows, which have been fairly low in the last two days. The Cable move higher came despite Pimco's Amey reiterating his call that GBP may fall 10-15% versus the USD this year. He made similar recommendations in May ahead of Carney's appointment. Meanwhile, U.K. CBI retail sales volume hit the highest levels since June 2012 at +34 in September from +27 in August, suggesting that last week's official U.K. retail sales miss was a blip in the otherwise strong U.K. data releases.

    [USD, CHF]
    EUR-CHF is relatively near 1.2300 after it lacked follow through on the downside despite Monday's close under the 200-dma. Specs are reluctant to add short positions given the persistent downside failures under this level since April. On Monday after EUR-CHF broke lower SNB's Jordan took to the wire to offer a verbal defence of the CHF cap. Central bank rhetoric could get louder on further CHF strength and this will deter EUR-CHF sellers. The SNB have a decent track record in defending EUR-CHF, though have been helped out by the stabilisation in the Eurozone and improving fundamentals in the global economy. On an intra-day basis we anticipate buyers between 1.2285 and 1.2275, which were evident in the last 24 hours via macro names and Swiss private banks. USD-CHF has also regained a foothold above 0.9100, though upside momentum was limited ahead of resistance on the hourly chart into 0.9150.

    [USD, CAD]
    USD-CAD headed back to the 1.0320 area after it found a base at 1.0270 on Tuesday. Equity markets continued to struggle overnight and this weighed on the commodity bloc. There is speculation that USD-CAD's tight range near 1.0300 may be a consequence of option expiries, which suggests that the current narrow rangebound theme will continue today. Indeed, movement into 1.0310-20 during the European afternoon met an active Asian accounts, which are often end users of options and could keep the upside limited. There were very few leads elsewhere though. The FX majors are all experiencing a period of consolidation after last week's Fed inaction. In the near-term movement looks likely to continue between 1.0270-80 bids and offers from 1.0320-30 to 1.0350.

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