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By XE Market Analysis August 28, 2020 3:12 pm
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    XE Market Analysis: Asia - Aug 28, 2020

    The DXY bounced modestly in N.Y. on Friday, after coming under pressure overnight, hitting an eight-session low of 92.20 early in the day. The Dollar's move lower apparently came as the market has determined that the Fed's new inflation policy will keep interest rates low for even longer, which should continue to keep the USD under pressure. The modest subsequent gains on Friday came on the back of stronger than expected income and consumption data, and improved consumer sentiment. Continued improvement in the U.S. economy will likely offset some rate related weight on the Greenback. EUR-USD pulled back from 1.1920 highs, later bottoming at 1.1868. USD-JPY opened at 105.21 lows before printing a 105.75 high, then settling under 105.50. USD-CAD bucked the trend, rallying from 1.045 to 1.3126 GBP-USD made its way to 2020 highs of 1.3356, later ebbing toward 1.3320.

    [EUR, USD]
    EUR-USD rose from overnight lows of 1.1811, peaking at 1.1920 in early N.Y, then trending sideways between 1.1868 and 1.1911 through the remainder of the session. Following the gyrations seen following the Fed shift in inflation policy, the market appears to have settled on the facts that interest rates will be low for even longer. This has on Friday, and will likely continue to weigh on the Dollar, though strong incoming U.S. data should remain an offsetting factor.

    [USD, JPY]
    USD-JPY bounced from eight-session lows of 105.21 after the much better U.S. income and consumption data, topping at 108.75 before drifting back to near 105.50. The pairing had fallen from better than two-week highs of 106.94 seen during Asian hours. The rally seen after Powell's speech on Thursday appears to have run its course, with the USD down broadly this morning. Risk-on conditions, along with lower yields have seen the (sometimes) safe-haven Dollar lose its appeal today. In addition, news that Japan PM Abe will resign due to health issues has supported the Yen. USD-JPY support comes at the August 19 low of 105.10, with resistance at the 50-day moving average, currently at 106.52.

    [GBP, USD]
    Cable printed highs of the year at 1.3356 in N.Y, floated by resuming dollar weakness after coming through some post-Fed announcement chop. The recovery in both the domestic and global economy from the more extreme phase of lockdowns that were seen earlier in the year has been a positive for the UK currency, which had underperformed during the worst of the panic. The USD is likely to remain under pressure now following the Fed's policy shift, though the Brexit trade outlook remains far from settled, and could still put renewed pressure on the Pound.

    [USD, CHF]
    EUR-CHF was steady on Friday, 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 recovered from an eight-month low of 1.3045, seen early in the North American session, eventually peaking at 1.3126 in afternoon trade. A dismal (but as-expected) Q2 Canada GDP print put some pressure on the CAD, while strong U.S. data supported the Greenback The pairing had come from overnight highs of 1.3133, declining through the Asian and European session, as the USD headed broadly lower. Oil prices have been supportive of the pairing as well, as WTI continues to struggle above the $43.00, with upside momentum lost as damage to U.S. Gulf coast oil infrastructure was less than feared.

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