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By XE Market Analysis August 27, 2020 2:40 pm
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    XE Market Analysis: Asia - Aug 27, 2020

    The dollar fell early in N.Y. on Thursday, after Powell indicated the Fed would change its inflation targeting, allowing CPI to rise above the 2% target for a time. As a result of the policy change, interest rates are set to remain close to zero for a longer time. USD-JPY fell from 106.10 to one-week lows of 105.63, while EUR-USD popped to 1.1899 from opening lows of 1.1794. Equity futures turned higher, while yields headed lower. USD losses later were more than reversed, as risk-on conditions returned, yields moved up again, and profits were taken from the initial knee-jerk reaction.

    [EUR, USD]
    EUR-USD ramped up from opening lows of 1.1801 to 1.1899 after the Powell speech where he confirmed that the Fed now seeks inflation that averages 2% over time, and likely means interest rates will stay lower for longer. This initially saw the Dollar overall head down, though with this outcome largely priced in over the past day, profit taking was quick to step in. EUR-USD printed one-week lows of 1.1763 by mid-morning, later steadying over 1.1800.

    [USD, JPY]
    USD-JPY headed back up to N.Y. session highs, peaking at 106.42, after opening at near 106.20, and initially sliding to 105.61 lows following the knee-jerk reaction to Powell's speech, where changes to inflation targeting will leave interest rates lower for longer. Since then, Wall Street has turned higher, while Treasury yields have moved up again, both supportive of USD-JPY. Resistance is now at Wednesday's 106.56 high, with support at Friday's 205.43 low.

    [GBP, USD]
    Cable hit a low of 1.3117 in early N.Y., later topping at 1.3219, as the USD overall came under pressure ahead of Powell's Jackson Hole speech on Thursday. On the Brexit front, the consensus view is that a deal will be struck. We are wary. There are grounds to doubt there can be anything other than a narrow deal, given the intransigence on the EU's level-playing-field rules and fishing rights. A bare-bones or a no-deal outcome are a risk. Sterling is liable to remain in sell-the-rally mode for the time being.

    [USD, CHF]
    EUR-CHF was steady on Thursday, again trading in the mid to lower-1.07s. The franc, an historic low-beta safe-haven currency, periodically correlatives inversely with global stock market direction, along with sentiment about the EU (Switzerland's biggest trading partner). The influence of the SNB's intervening hand may have been at play this week, too. Total Swiss sight deposits of francs have risen by 130 bln since the pandemic and consequential lockdowns took a grip on global markets back in March. Sight deposits can be viewed as a proxy marker of SNB intervention to sell francs in forex markets (after buying foreign currencies), which results in the crediting of newly created francs at commercial banks sight accounts.

    [USD, CAD]
    USD-CAD chopped around between 1.3100, a fresh seven-month low, and highs of 1.3161 through the Thursday session. The pairing dipped to 1.3104 following the Powell speech, as the USD overall initially turned lower, later hitting its high as the Dollar headed higher again. As risk-on conditions prevailed, and as oil prices remained firm in the aftermath of the Gulf hurricane, USD-CAD hit its 1.3100 low into the London close.

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