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XE Market Analysis: North America - Mar 05, 2013

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The European morning was dominated by EUR and GBP flows, while the USD started the session on the softer side after risk appetite improved overnight. EUR headed higher after eurozone services PMI was revised up, but it saw limited gains due to fund offers from 1.3075 and headed back to the 1.3020 area. Cable was also in better shape today after a short squeeze on Monday saw it open ahead of 1.5100 and it extended to the 1.5200 area after U.K. services PMI was much stronger than expected. JPY was stable throughout after it a firmed up in Asia after a DPJ politician was opposed to Iwata's deputy governor appointment due to his backing for a BoJ law change. AUD was stable after RBA left rates on hold at 3.00% as-expected. Governor Stevens left the door open on further easing if needed, but overall was positive about the non-mining aspects of the economy and also the improvement in the eurozone and China.

EUR-USD headed to highs around 1.3075 after eurozone services PMI was revised up to 47.9 from 47.3 initially reported after upward revisions in German and French readings. The number added to the improvement in risk appetite, which was evident overnight after a positive Wall Street close. However, EUR was in territory where good offers are noted, while the uncertain political backdrop in Italy and the forthcoming ECB meeting also encouraged selling pressure upticks. These influences fueled a move back into 1.3020 by late on in the European morning. There are option expiries at 1.3050 that could draw an influence, while in recent sessions very large 1.3000 expiries have also weighed.

USD-JPY fell from the 93.50 area to traded just below 93.00 amid opposition from the DPJ to Iwata's oppointment as BoJ deputy governor after he backed changing BoJ law as an option. The other deputy governor nominee Nakaso was more restrained and said he couldn't promise to deliver the 2% CPI target in two-years. After USD-JPY triggered stops through 93.00 it ran into buyers ahead of 92.90. More support is likely into the 92.75-80 area and towards 92.50-60. The upside is looking more limited amid rising exporter hedging and also activity related to the Japanese fiscal year-end at the end of the month.

Cable headed to session highs close to 1.5200 after U.K. services PMI hit 51.8 in February, which was the highest outturn since last September. Into the release, Cable pulled back a touch from 1.5155 to 1.5130, but had been on the front foot since late N.Y. on Monday amid rumours that today's PMI reading could surprise on the upside. Market positioning had featured heavily in the turnaround from 1.5000 yesterday, though this also represented a good level for longer term hedging. Corporate names were active, along with repatriation flows from U.K. pension funds. The outlook for GBP is still weak, but a lot of negative news is now priced in. Today's reading also reinforced expectations of a steady hand from the BoE on Thursday.

EUR-CHF firmed up after EUR-USD regained its poise over 1.3000 amid a rise in risk appetite. EUR-CHF steadied just under 1.2240 on Monday and closed around the 1.2250 area, which encouraged light demand on dips today and it extended to 1.2285 after eurozone services PMI data. Momentum on the upside was limited into offers at 1.2280-90, along with some reluctance to over extend EUR longs ahead of Thursday's ECB meeting and of course the ongoing political uncertainty in Italy. USD-CHF has found a modicum of support into the 0.9400 region after it pulled back from 0.9440 on Monday, which compared with Friday's rally highs just over 0.9460. USD-CHF momentum should remain with the upside, though over 0.9450 movement could be challenged by supply related to outstanding option barriers.

USD-CAD eased back some in early North American trade, with Canadian names the noted sellers. It struggled over 1.0300, managing 1.0309 highs before pulling back to 1.0270 levels and then extended to 1.0255 in Asia. The cutting of U.S. equity futures losses appeared to have helped the loonie, as did the modest rebound in oil prices. USD-CAD should continue to trade in lockstep with stock markets ahead of the BoC policy decision on Wednesday.Support is seen at 1.0260-50 now, while stops are noted over 1.0320. Higher up there is option related selling to consider ahead of 1.0350 barriers.

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