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By XE Market Analysis August 6, 2020 3:11 pm
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    XE Market Analysis: Asia - Aug 06, 2020

    The Dollar bounced from the fresh lows seen overnight, overall recovering through the London morning session. The USD posted modest gains in early N.Y. following improved initial and continuing jobless claims, though as Treasury yields turned sharply lower, the Greenback lost its modest bid, and headed down again. Wall Street was mildly firmer in choppy trade, with stocks gyrating as the market waits on Washington to deliver a fresh aid bill, though ended up bouncing later in the session. Ongoing uncertainty over the sustainability of the recovery remains an undercurrent as well. Bigger picture for the USD, with U.S. yields at record lows, along with growing concern over deficits, the Dollar would appear to have further downside potential going forward. EUR-USD bottomed at 1.1818 after opening near 1.1865, later rallying to 1.1894 highs. USD-JPY was rangebound, printing a 105.31 low, and a 105.61 high. USD-CAD made a 1.3266 low, later peaking at 1.3223, while GBP-USD touched a low of 1.3119, before rallying to 1.3172. Friday's main event will be the July BLS employment report.

    [EUR, USD]
    EUR-USD printed fresh 27-month highs of 1.1917 in London, though a lack of upside follow through saw the pairing steadily pull back to 1.1818 lows in late N.Y. morning trade, likely on profit taking. EUR-USD turned higher in late morning trade, topping at 1.1890 into the London close. Bigger picture the Dollar overall has remained under pressure, as Treasury yields continue to slide, and as the near term U.S. economic outlook remains cloudy due to the virus. In the medium term, the massive U.S. deficits will weigh down the USD as well. A buy-the-dip strategy has been working well for EUR-USD, and should continue to be the way to go for now. Near term upside target is at 1.2000.

    [USD, JPY]
    USD-JPY opened at 105.40, later topping at 105.58 following the better U.S. claims data. The pairing subsequently bottomed at 105.31 taking its cue from falling Treasury yields, though as risk taking levels deteriorated, the USD overall bounced, later taking USD-JPY to N.Y. session highs of 105.61. The DXY printed a fresh marginal new 25-month low of 92.53 in London morning trade, and the Dollar's modest rally since then may have been due to short covering. Bigger picture though, sliding Treasury yields will ultimately keep pressure on the USD.

    [GBP, USD]
    Cable printed a new five-month peak at 1.3186 in London trade. The move higher came thanks to the BoE's cautiously optimistic take on the outlook, which was combined with a reassuring re-commitment to refrain from tightening policy "until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably." The more upbeat BoE came with forex markets factoring better odds for a EU-UK trade deal, with a number of recent sourced UK press reports suggesting that discussions are going better than the official line suggests.

    [USD, CHF]
    EUR-CHF perked up over 1.0820 in N.Y. on Thursday, after matching last week's near two-month high of 1.0841 in N.Y. on Monday. The cross continues to be supported by broad outperformance of the Euro and, possibly, the added influence of the SNB's intervening hand. Weekly sight deposit figures out of Switzerland suggest that the central bank has been continuing to sell francs regularly, as it has been since the consequences of the pandemic took a grip on markets, which had the impact of increasing demand for the Swiss currency, back in March. Recent general Euro strength has provided the cross support. The pairing continues to trade comfortably above the series of lows near 1.0500 that were seen from March through to mid May. Committed SNB intervention prevented the 1.0500 level from being breached over this period.

    [USD, CAD]
    USD-CAD recovered some from Wednesday's five-plus month low of 1.3231, making its way to 1.3304 highs early in the North American session, and to intra day highs of 1.3323 later in the morning. The rally in oil prices following the better U.S. claims data saw USD-CAD ease back to 1.3272 low. WTI crude bounced from $41.90 to over $42.60. USD-CAD has remained inside of yesterday's trading band, with the high of 1.3333 and low of 1.3231 now marking resistance and support.

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