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By XE Market Analysis August 23, 2019 3:08 pm
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    XE Market Analysis: Asia - Aug 23, 2019

    The Dollar Index fell to eight session lows of 97.67 in N.Y. on Friday, coming from 98.42 at the open. USD sellers stepped in after China announced 5-10% tariffs on an additional $75 bln of U.S. goods, and the Greenback was weighed down by a fairly dovish, but non-committal speech from Fed chair Powell. Volatility perked up later when Trump went after China on Twitter, saying "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA," Trump said on Twitter. "We don't need China and, frankly, would be far better off without them." This resulted in Wall Street and Treasury yields tanking, and the Dollar being pushed to session lows. EUR-USD ramped up to over 1.1145 from opening lows under 1.1060. Risk-sensitive USD-JPY meanwhile dumped to lows of 105.28 from highs over 106.70. USD-CAD fell to 1.3277, though later recovered over 1.3325 as trade fears saw WTI crude drop more than 3%. Cable rallied to August highs of 1.2279.

    [EUR, USD]
    EUR-USD vaulted to seven-session highs of 1.1147, up from lows of 1.1053 seen at the release of Powell's comments. The Fed chief's words had little impact on the Dollar, as he played it coy on the policy outlook front. The imposition of new tariffs by China on U.S. goods, and Trump's subsequent counter attack on China got the FX market rolling, taking the USD broadly lower. There may still be fireworks ahead this afternoon, as Trump has said he will "address" the new tariffs.

    [USD, JPY]
    USD-JPY fell to nearly two-week lows of 105.29 on the back of both the middle of the road Powell speech, and the subsequent apparent escalation in the U.S./China trade war. Trump tweeted "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. We don't need China and, frankly, would be far better off without them." Risk-off conditions accelerated on this, taking Treasury yields and Wall Street sharply lower, to the detriment of USD-JPY.

    [GBP, USD]
    Cable printed August highs of 1.2279 during the N.Y. session on Friday, iA downsizing in what has built up to be an extreme net short exposure to the pound after months of Brexit-related underperformance has been afoot over the last couple of weeks, which comes ahead of the UK parliament's return from summer recess on September 3. Yesterday's upbeat remarks from Germany's Merkel triggered a buying reaction. The bulk of Cable's gains came in N.Y. following another escalation of the U.S./China trade war, where new tariffs on the China side were countered by an expansive Twitter tirade from Trump.

    [USD, CHF]
    EUR-CHF fell from over 1.0900 in N.Y. to lows near 1.0850 as risk-off conditions prevailed in the aftermath of a non-committal speech from Fed chair Powell, and the sharp escalation of the U.S./China trade war. The cross printed a fresh 25-month low at 1.0835 last Thursday amid volatility in equity markets and recession-portending inversions of the U.S. and UK yield curves, which fed safe haven demand for the Swiss currency (despite the punishing -0.75% deposit rate). While risk conditions have improved since last week, we retain a bearish view of the cross given ECB's course to additional monetary stimulus in September, and the risk of a disorderly no-deal Brexit on October 31.

    [USD, CAD]
    USD-CAD fell from near 1.3335 to 1.3305 following the Canada retail sales, which were considerably stronger than expected. The pairing had been on the rise earlier though, topping at 1.3339 after China announced additional tariffs on U.S. goods, which slammed WTI oil prices over 3% lower. Later, as Trump hit back at China with a major Tweet-storm, USD-CAD based at 1.3277, though the sharp slide in oil prices more than offset, with USD-CAD trading back to near session highs. Tuesday's high of 1.3346 marks resistance.

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