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By XE Market Analysis September 26, 2013 7:26 am
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    XE Market Analysis: North America - Sep 26, 2013

    Ranges were pretty narrow for the most part, though GBP was a mover and shaker, taking a dip following an unexpected y/y revision lower in the final Q2 GDP estimate out of the U.K.. The report also showed unexpected weakness in business investment and a one-off boost to consumer spending that partly reflected the timing of deferred bonus payments to take advantage of a tax change. The U.K. Q2 current account deficit also came in worse than expected, at GBP 13.0 bln from a massively downwardly revised GBP 21.8 bln in Q1. EUR-USD, meanwhile, saw some chop in ebbing from the 1.3520 area to a low of 1.3485 before recovering the 1.35 handle once again. EUR sentiment soured following Eurozone money supply data that showed loans to non-financial corporations were down 3.8% y/y, while ECB Asmussen was the latest council member to re-emphasize that monetary policy will remain expansive. USD-JPY rebounded from a one-week low of 98.27 as the yen performed its usual inverse correlation with the Nikkei-225 stock index, which was boosted by news that Japan's ruling LDP is studying a corporate tax cut and the confirmation that PM Abe will detail new stimulus measures on Oct-1.

    [EUR, USD]
    EUR-USD saw some chop in ebbing from the 1.3520 area to a low of 1.3485 before recovering the 1.35 handle once again. EUR sentiment soured following Eurozone money supply data that showed loans to non-financial corporations were down 3.8% y/y, while ECB Asmussen was the latest council member to re-emphasize that monetary policy will remain expansive. Bigger picture, EUR-USD has formed a bullish pennant consolidation pattern in the wake of early to mid Sep-19 rally to 1.3568, which is the highest level seen in seven months. The ECB's recently strong communication that it remains committed to a dovish policy course, and the possible re-use of LTRO, has taken the wind of the sails of bullish argument. We expect the pair will see a further correction toward the 1.3452 (which marks the Aug-30 peak) and 1.3430 region.

    [USD, JPY]
    USD-JPY and EUR-JPY dipped in early Tokyo session to respective one-week lows of 98.27 and 132.68 before rallying, with the yen making its usual inverse correlation to the direction of the Nikkei-225 stock index, which was boosted by news that Japan's ruling LDP will look to make a corporate tax cut amid its stimulus plans, and confirmation that PM Abe will detail new stimulus measures on Oct-1. USD-JPY logged a one-week low of 98.27 before finding support ahead of a three-month trend line formed by lows seen in June, August and mid-September. The pair subsequently surged to a peak of 99.11. Japanese fund names were reported among buyers in USD-JPY. Notable stop orders, including option related, were triggered through 99.00, while selling interested was reported to be clustered around the 99.20 level, which matches the current level of a trend resistance line draw in formation since early September. The 20-day moving average is presently situated at 99.25.

    [GBP, USD]
    GBP dove on an unexpected downward revision to y/y Q2 GDP out of the U.K., where the final estimate from the ONS stats office confirmed the 0.7% q/q second estimate but chopped the y/y figure to 1.3% from 1.5%. The Q2 current account deficit was also wider than expected at GBP 13.0 bln, versus the Reuters median of GBP 12.0 bln, and from a huge upward revised to the Q1 deficit to GBP 21.8 bln from GBP 14.5 bln. Cable lost about 40 pips with 10 minutes of the data release, making a low of 1.6035, and having reversing course after earlier making a one-week high of 1.6096. The GDP data had some further devils in its detail. Growth was flattered by a 0.3% in household expenditure, with disposable income up 1.5%, the most in a year that at least partly reflected the timing of deferred bonus payments to take advantage of a tax change. Also, net trade made a zero contribution to GDP in the quarter, down the previously estimated +0.3. The figure business investment was revised down from +0.9% to -2.7% q/q, for a -8.5% y/y outcome. In sum, the report takes some of the shine out of the U.K. recovery story, but recent survey evidence points to a strengthening in GDP to +1.0% q/q. Support in Cable is pegged at 1.6035 ahead of the key 1.6000 level, which we look to hold.

    [USD, CHF]
    With EUR-CHF confined in comparatively narrow ranges, as has been the case since the SNB imposed its limit level two years ago, USD-CHF remains largely a reflection of EUR-USD direction. The EUR-CHF cross itself has been trending lower over the last two weeks, having fallen from 1.2400-plus levels, though momentum has been waning in recent sessions, despite the break and close below the 200-day moving average earlier in the week. The market is reluctant to establish short positions at sub1.2300 levels in light of the persistent downside failures under this level since April. SNB's Jordan also, earlier this week, reminded markets that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals. Bid interest is seen between 1.2285 and 1.2275. Switzerland's September KOF economic barometer is due tomorrow, which we expect a sixth consecutive rise, to 1.46 from 1.36 in August.

    [USD, CAD]
    USD-CAD logged a nine-day peak yesterday after breaking the 1.0300 resistance level, which has now reverted to a near-term support, along with the 200-day moving average at 1.0305. Resistance is pegged at 1.0320-25, which encompasses the presently position of the 20-day moving average. The momentum of the rally in place from last week's sub-1.0200 lows has ebbed, and we would expect to see some consolidation. Canada's data calendar remains light through the end of the week, leaving the focus on U.S. indicators, including expected upward revision to Q2 GDP and jobless claims.

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