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By XE Market Analysis August 10, 2020 12:47 pm
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    XE Market Analysis: Asia - Aug 10, 2020

    The dollar took a downward shift. USD-JPY posted a low at 105.72, which is less than 40 pips from the day's peak. Cable clocked a peak at 1.3104, marking a 50% retrace of Friday's drop. AUD-USD printed a high at 0.7185. Both Cable and AUD-USD remained below their respective trend highs that were seen last week, as did EUR-USD, which settled near the 1.1750 level. Overall, the forex market lacked clear direction. Conditions were thin, being the summer season in Europe and North America, and with Tokyo and Singapore having been closed today. We are less bearish of the dollar than hitherto, partly on the evidence the U.S. Jul jobs report presented and partly as the rate of new infections of the coronavirus drop across the sun states, fitting the downward part of a classic Gompertz curve of annual respiratory illnesses, albeit a relatively bad one. The experience in Europe over the last couple of months has been of localized bumps in new infections, which has led to lockdown measures being re-imposed. These bumps, however, have not led to a corresponding rises in hospitalizations or mortalities and Europe's all-cause mortalities, after spiking earlier in the year, continue to trend below the long-term average. The U.S. is likely to follow the same pattern.

    [EUR, USD]
    EUR-USD settled near 1.1750 after extending the correction from the 27-month high that was pegged last Thursday at 1.1917. Friday's above-forecast U.S. jobs report lifted the dollar, although weighing on Wall Street on the view that it may reduce the urgency for further stimulus, along with concerns about U.S.-China tensions. Congress remains in a stalemate over the next fiscal package, though President Trump issued executive orders to extend pandemic-era unemployment benefits. U.S.-China tensions remain a focus into scheduled trade talks between the two on August 15th after the President Trump banned Tiktok and WebChat from operating in 45 days if they are not sold by Chinese parent companies, along with sanctioning 11 Chinese and Hong Kong officials. We are less bullish of EUR-USD than hitherto, when we were targetting 1.2000, partly on the evidence the U.S. Jul jobs report presented and partly as the coronavirus rate of new infections drop across the sun states, fitting the classic Gompertz curve of annual respiratory illnesses. While the 'feardemic' will persist, as it has across Europe, although with waning force, we can expect with confidence that the U.S. will see its overall Gompertz curve of the coronavirus flatten to near nothing, as it has done in Europe and places such as New York, where herd immunity has built up. The experience in Europe over the last couple of months has been for localized bumps in new infections to show up, which has led to lockdown measures being re-imposed. These bumps, however, have not led to a corresponding rises in hospitalizations or mortalities. Europe's all-cause mortalities, have spike earlier in the year, continue to trend below the long-term average.

    [USD, JPY]
    USD-JPY lifted and pierced Friday's peak at 106.07, making a high at 106.20. The Japanese currency is likely to remain apt to directional change on the back of shifting risk premia in global markets. While the BoJ remains committed to uber stimulus, the central bank is no longer unique in this regard (a reflection of this was the 2-year UK yield recently dipping below Japan's 2-year yield for the first time ever), and so has been having little weakening impact on the Japanese currency relative to peers. Backed by a surplus economy, and one where yield-seeking domestic investors are apt to invest in foreign assets during times of confidence, but repatriate funds when times are uncertain, the yen has built up a reputation as a reliable haven currency.

    [GBP, USD]
    Cable lifted moderately to a 1.3104 intraday high, up from Friday's six-day trough at 1.3009. At the same time, the perkiness of the pound pressured EUR-GBP to a four-day low at 0.8981. From here, we see limited scope for sustained gains in the pound. The BoE last week delivered a warily-upbeat outlook, though with localized lockdowns and most media doing their utmost to maintain maximum fear of a second wave of coronavirus infections, we take a circumspect view of the outlook over the coming months, anticipating a plateauing in economic rebound momentum. Both Manchester and Aberdeen are back in lockdown. The city of Leicester, however, reopened last week after being locked down for most of the past month. Worth noting is the fact that there has been no follow-through in Leicester from a bump in higher in terms of new cases -- i.e. no event impact of corresponding higher hospital admittances and mortality. Brexit remains unresolved, although off the agenda for now during the summer break. Talks are scheduled to resume on the week of August 17th. The final round of discussions is set for the week commencing October 2nd. Recent sourced articles in the UK press have suggested that there is greater scope for a deal being struck than the official line has suggested, and there is certainly incentive on both sides for a deal to be made, though it would still remain to be seen how extensive a new trade deal would be. The UK calendar this week is features monthly labour data (Tuesday), preliminary Q2 GDP data along with June production and trade data (Wednesday).

    [USD, CHF]
    The Swiss franc has steadied below lows after showing a noticeable drop last Monday, as it did the Monday prior. The influence of the SNB's intervening hand seemed to have been at play. Weekly sight deposit figures out of Switzerland have been suggesting 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. A rise in sight deposits (money held by commercial banks) can suggest francs turning up after being sold by the central bank. Last Monday, EUR-CHF made a rare appearance on the 'biggest daily mover' list out of the main dollar pairings and associated cross rates, when is showed a 1% gain on one day. The crosses yesterday matched the two-month high that was first pegged last week at 1.0841. The seven-month peak, seen in early June, is at 1.0921. The advent of the EU's recovery fund, seen as a milestone by many analysts (a new liquid AAA fund that also reduces Eurozone breakup risks) has by many accounts caused a re-weighting of the common currency in portfolios, and which will help the SNB combat what it sees as a chronically overvalued franc.

    [USD, CAD]
    USD-CAD settled around the 1.3350 mark after rotating moderately lower, from the upper 1.3300s, extending a correction from Friday's six-day high at 1.3400. Bigger picture, the pair has been trending lower, albeit with waning momentum, since mid March, when there had been a burst of demand of U.S. dollars when pandemic panic gripped the world. The culmination of that trend is the six-month that was logged last Wednesday at 1.3231. The global economic recovery from lockdowns, which were at their zenith in April, has been instrumental in USD-CAD's downtrend, with the Canadian currency rising concomitantly with oil prices while the U.S. currency has waned as a safe haven currency, and with negative real U.S. yields (on the view that the Fed may become strategically more tolerant of inflation risk) also eroding the greenback's performance. The Canadian buck should continue to remain sensitive to fluctuations in the U.S. dollar and oil prices. Downside risks for the currency include the OPEC+ group's course to easing output quotas, which could weigh on oil prices, alongside the coronavirus pandemic and geopolitical tensions, should they derail the recovery in global asset markets.

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