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By XE Market Analysis September 30, 2013 7:44 am
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    XE Market Analysis: North America - Sep 30, 2013

    The JPY and GBP were the main gainers amid a moderate risk-off theme as U.S. and Italian politics , along with a disappointing revision to the HSBC measure of China September PMI (to 50.2 from 51.2), take a negative hold on investment appetite. EUR-USD saw some chop, diving 40 pips at the Asia-Pacific session open, but was unable to break free of the gravitational pull of 1.3500, having left last week's low at 1.3461 unchallenged. While the EUR managed to hold up versus the USD, it weakened against both GBP and JPY, with the euro affected by both softer than expected Eurozone inflation data and the Berlusconi's party withdrawal of support from the Italian government. GBP-USD rallied a fresh trend high of 1.6180 and EUR-GBP to a new trend low of 0.8340. Mortgage lending figures today added to recent strong U.K. data and less-dovish tone of BoE-speak that are helping to reinstate sterling's safe haven credentials. USD-JPY dropped to a one-month low of 97.63. The break of both 50- and 200-day moving averages last week portended the run lower, and we look for a move to 97.0. Japanese August production data disappointed, but September PMI and August retail sales figure were strong.

    [EUR, USD]
    EUR-USD continues to trade in a pennant-like formation, anchored around the 1.3500. On Saturday, Berlusconi ordered his centre-right colleagues to leave cabinet and push the Letta government to the brink of collapse, though there are reports that Letta may be able to persuade sufficient quantity of Berlusconi's party members to join him in government and so avert the need for another election. The U.S. political situation, meanwhile, is casting a negative pall over EUR-USD, as it tends to support the dollar (perversely on safe haven grounds) and via EUR-JPY, as the yen tends to outperform during episodes of risk aversion. The House of Reps, over the weekend, rejected the Senate's "clean" funding bill, putting the budget crisis down to the wire. Overall, the market is presently reluctant to commit as uncertainties prevail, though as it stands, we would favour a bearish view on EUR-USD.

    [USD, JPY]
    USD-JPY dropped to a one-month low of 97.63 as risk aversion ensued. The break of both 50- and 200-day moving averages last week portended the run lower, and we look for a move to 97.00. The revival in Japan's core CPI, which rose to 0.8% y/y in August, added to the evidence that the BoJ's ongoing reflationary effort, a backdrop that should be yen support as it implies a less certain future for yen funded carry trades. Japanese data today were mixed, though a soft August industrial production figure was offset by a strong forward looking PMI survey outcome for September, along with an improvement in August retail sales..

    [GBP, USD]
    GBP-USD rallied a fresh trend high of 1.6181 during thin Asian trade, since settling to the 1.6150 region in London. EUR-GBP concomitantly hit a new trend low of 0.8340 during the rally in Cable. Recent strong U.K. data and less-dovish tone of BoE-speak helping reinstate sterling's safe haven credentials. The next key resistance on the Cable chart looks to be 1.6200, which had proved formerly a pivotal level during the latter part of 2012. A trend support line, draw from August lows, comes in some way below prevailing levels at 1.5970, a technical sign at the market is looking over-bought relative to trend. The BoE's lending report for August was strong, overall, and we expect data releases this week, particularly the PMI surveys, to be support of the pound.

    [USD, CHF]
    EUR-CHF continued to trend lower, today driven by the political uncertainty in the U.S. and Italy which is feeding a Swiss currency supportive risk-off theme in global markets. The cross has descended from 1.2400-plus levels two weeks ago and has traded to a low of 1.2218 today, so still above the SNB no-go zone near 1.2000. The speculative part of the market will be reluctant to establish short positions through 1.2200. SNB's Jordan reaffirmed last week that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals. Should risk aversion continue, we would expect EUR-CHF to remain heavy and trade toward 1.2000, though, and similar to previous episodes since the currency limit peg was introduced in September 2011, we would fully expect the SNB to make a successful intervention to cap Swiss currency strength.

    [USD, CAD]
    USD-CAD has re-established a foothold above 1.3000, which markets near-term support. The heighted risk backdrop, as U.S. budget negotiations go down to the wire again, should keep the commodity bloc CAD on a softer footing. Resistance is marked by the 200-day moving average at 1.3052. In Canada this week, July GDP data will highlight the domestic calendar in the week ahead. Our projection is for GDP (Monday) to rebound 0.5% after -0.5% in June, with the risk for an even stronger gain after strength in all the key July reports. The data should be consistent with an expected acceleration in Q3 GDP to +2.3% after +1.7% in Q2, which would significantly trail the BoC's +3.8% projection from the July MPR.

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