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By XE Market Analysis August 18, 2020 2:59 pm
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    XE Market Analysis: Asia - Aug 18, 2020

    The DXY hit a 27-month low of 92.13 at mid-morning in N.Y. on Tuesday, down from 92.56 into the open. USD selling interest has perked up for the past few session, as the market frets over the lack of progress being made on the COVID front in the U.S., which has clouded the economic outlook, not withstanding the sharply higher housing starts data today. In addition, the lack of government stimulus headway has been a weight on the USD, as have been November election jitters. Wall Street was mixed, though the S&P 500 and NASDAQ both printed record highs. Treasury yields were lower. EUR-USD ramped up to 27-month highs of 1.1966, from lows of 1.1990 at the open. USD-JPY meanwhile printed near three-week lows of 105.28. USD-CAD Popped to 1.3204 from trend lows of 1.3150 on short covering, though later pulled back to 1,3160. GBP-USD hit highs of the year at 1.3245.

    [EUR, USD]
    EUR-USD printed 27-month highs of 1.1966, after opening the N.Y. session under 1.1905. The dollar overall remains under pressure, given the backdrop of the lack of a virus relief bill, and the clouded economic outlook as a result of the lack of progress controlling COVID in the U.S. The fact that real Treasury yields are negative hasn't helped the greenback either. The obvious next upside target is the psychological 1.2000 level, which was last seen in May of 2018.

    [USD, JPY]
    USD-JPY fell to near three-week lows of 105.28, as the Dollar rout continued on Tuesday. The pairing had topped at 105.57 early in the session. Despite the better U.S. housing data, the USD remained broadly under pressure, as COVID concerns remain, and as Congress can't agree on further stimulus measures. With the USD apparently losing its status as a safe-haven, Yen gains are set to continue, as Dollar selling has picked up momentum. The psych 105.00 level is the next support level.

    [GBP, USD]
    Sterling headed higher amid a soft dollar environment and, reportedly, a phase of strategic reversing of short hedges as the forex market position on a rise in the perceived odds for the EU and UK reaching a trade deal by October. Cable rallied by about 1% in printing a new high for the year at 1.3245. Given the risks of a no deal, or only a narrow deal being made, we expect the pound's upside forays to be limited. We also anticipate the UK's economic recovery from full lockdown to plateau in the weeks and months ahead.

    [USD, CHF]
    EUR-CHF stuck to the mid 1.07 handle through last week, and it looks to be more of the same this week. 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. 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 hit a seven-month low of 1.3150 early in the North American session, taking its cue from relatively firm oil prices, and a broadly weaker USD. The pairing saw buyers step in at the lows, with the level corresponding to the bottom seen in late January. Short covering was the likely driver, seeing USD-CAD rebound to 1.3204 highs, before fading back under 1.3165. Given the bleak backdrop for the Greenback, further USD-CAD downside can be expected, with the 1.3100 level the next target. On Wednesday, Canada July CPI will be released.

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