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By XE Market Analysis October 22, 2013 12:56 am
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    XE Market Analysis: Europe - Oct 22, 2013

    FX trade was extremely subdued again overnight after extremely low volumes on Monday, with major dollar pairings stuck inside narrow ranges. The dollar was marginally higher as a result of light profit taking, leaving EUR near 1.3665, USD-JPY close to 98.30 and Cable around 1.6120. Most players looked ahead to the postponed employment report. However, this release is already being discounted as it predates the government shutdown. A strong report could potentially offer some temporary respite for the dollar, though we suspect in this scenario it could represent a selling opportunity as market participants price in poor October numbers. A weak number combined with the impact from the October fiscal battle will give the Fed a good reason not to taper policy for the remainder of the year. Asia developments were few and far between overnight. China new homes sales fuelled some nervousness over potential property price curbs by Beijing after prices rose in 69 out of 70 cities, with prices up 9.1% y/y from 8.3% previously.

    [EUR, USD]
    EUR-USD is still hemmed by very good support on dips and strong resistance from 1.3710. Intra-day account sold ahead of 1.3700 after this level held on Monday and it drifted back into the 1.3660 region. However, the underlying tone is still heavily skewed to the upside, but appetite to force a break of range was low ahead of a heavy U.S. data schedule. EUR-USD is still expected to meet buying interest on dips following Friday's weak dollar close and expectations of continued Fed policy tapering into 2014. With these influences in mind, short term EUR buyers are lined up from 1.3650 layered into 1.3600. A break above 1.3710 would trigger heavy buy stops, though resistance on the topside also includes more option barriers at 1.3725 to 1.3750, along with another long-term resistance level at 1.3740.

    [USD, JPY]
    USD-JPY continued to find a modicum of support on dips, which was heavily flagged during Monday's session due to the influence of option expiry congestion in the coming sessions. Large strikes are due to mature between 98.00 and 98.50 today and Wednesday. The 98.00 level is where the biggest exposure is confirmed today, along with modest size strike at 98.25, 98.50 and 98.75. On Wednesday more than a yard of maturities are rolling off at 98.45-50 and could guide action. Note, U.S. funds have also been a bit reluctant to aggressively sell USD-JPY through 98.00 due to the presence of large Japanese support, which was pinned on a semi-official name on Monday. It is reportedly protecting against a break of 97.50, where large sell stops are noted.

    [GBP, USD]
    Movement on the Cable upside faded to a degree on Monday as dollar consolidation set in ahead of the NFP release. Cable drifted through 1.6150 support and this encouraged a move to 1.6115 overnight. Follow through moves are likely to be limited though as selling into dollar strength remains the near-term theme, while U.K. fundamentals are expected to hold up. There are still market expectations that the BoE will be forced to hike rates earlier than it plans and inflation looks like it could become a potential problem amid a series of price hike by energy suppliers. Domestic data releases are fairly low on the agenda today, though BBA mortgage lending data should underline the improved conditions in the U.K. housing market. The Council of Mortgage Lenders said last Friday that gross mortgage lending was at the highest levels since Q3 2008.

    [USD, CHF]
    USD-CHF threatened the 0.9000 region again on Monday as the dollar came under a bit of selling pressure after U.S. existing home sales data. However, the market lacked the momentum seen late last week, but this was to be expected ahead of the NFP report. The dollar pairing is close to levels where good demand emerged recently. It has not sustained a move under 0.9000 since early October and only managed one close below on October-3, which is fuelling good demand on dips. There was conjecture that if USD-CHF experienced a significant drop then it could destabilise EUR-CHF. Option desks have hedged against this potential risk with short dated option strikes going through at 1.2325 and 1.2300 on a one-week to two-week horizon.

    [USD, CAD]
    USD-CAD continued to flirt with the 1.0300-10 area overnight after experiencing very narrow ranges on Monday. Dollar sell-interest is still in place at 1.0300-10, which is keeping a lid on the upside and there are further offers at 1.0330 and 1.0350 if seen, which will restrain momentum. The underlying dollar tone is hampering large upside moves, but in recent sessions bids from 1.0270 and 1.0250 have tended to deter sellers. Ahead of the U.S. employment report, we suspect traders will not push too hard in either direction.

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