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By XE Market Analysis December 13, 2019 2:01 pm
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    XE Market Analysis: Asia - Dec 13, 2019

    The Dollar index fell to five-month lows of 96.59 after the N.Y. session on Thursday, down from N.Y. closing highs of 97.27. The move came following the U.K. exit poll, indicating the Tories would win a large majority. This saw the Pound surge, dragging the EUR up with it. The USD perked up some in N.Y. trade, though conditions were generally choppy on the back of to and fro trade commentary from the U.S. and China. After the dust settled, it appeared a phase one trade deal may be in the cards, which should be supportive of the USD overall. Wall Street took on a buy-the rumor, sell-the-fact strategy, as contradicting trade reports came from both China and the U.S. For incoming data, U.S. retail sales missed expectations, though with focus on trade, had little impact on the FX market.

    [EUR, USD]
    EUR-USD pulled back from four-month highs of 1.1200 seen following the release of U.K. exit polls. The Euro was dragged higher by sterling, which rallied sharply on the realization that the Conservatives would win a large majority. This has clarified the Brexit issue to a degree, supportive of both the Pound and the Euro, at least in the big picture. From mid-morning, profit taking stepped in, taking EUR-USD to 1.1118 lows. This time of year generally sees liquidity dry up, as books are closed for the year, and trading staff is thinned from vacations.

    [USD, JPY]
    USD-JPY printed intra day lows of 109.26 early on, down from two-week highs of 109.71 seen in London morning trade. Uncertainty over the phase-one U.S./China trade deal has seen earlier equity futures gains turn into losses at the open, weighing on USD-JPY. The Hill is reporting that China's top diplomat said the U.S. needs to "calm down" on trade, saying the U.S. is "the troublemaker of the world". Later, as China agreed to the terms of the phase one deal, USD-JPY popped up near N.Y. highs, trading to 109.62 from 109.26 lows seen earlier. As stocks again pulled back, likely due to trade uncertainty (we have seen previous deals evaporate before), USD-JPY faded to lows near 109.20. Price action was driven solely by the back and forth of U.S./China trade talk, resulting in a see-saw on Wall Street, which impacted the Yen.

    [GBP, USD]
    Sterling retraced about half of the gains seen in the immediate wake of the exit poll of the UK election on Thursday. Cable posted a correction low at 1.3305, which was the culmination of a two-big-figure drop from the 1.3514 high, which is the loftiest level seen since May 2018. While Brexit and political fog has suddenly cleared, which should see pent-up business investment rebound, there are reason for caution. The next big test for Boris will be trying to replicate the trade deals that the UK had with the world's biggest free trade area, along with the 40 trade agreements the EU has with 70 countries.

    [USD, CHF]
    EUR-CHF rallied to four-month highs of 1.1001 following the release of the U.K. election exit polls, coming from 1.0960 at the N.Y. close. The cross chapped around during the N.Y. session sliding to 1.0951 on the back of back and forth U.S./China trade bickering. Later, as both sides agreed to the phase one deal language, the risk sensitive CHF headed lower again.

    [USD, CAD]
    USD-CAD remained under some pressure, bottoming at 1.3150, just a point above Thursday's one-month low of 1.3149. Risk-on conditions kept a cap on the pairing early in the session, while WTI crude's advance to near three-month highs of $60/bbl supported the CAD. Agreement on the USMCA trade deal, along with progress on the U.S./China phase-one deal should continue to limit USD-CAD gains going forward. The pairing later bounced over 1.3200 as oil prices pulled back on profit taking. Next USD-CAD support comes at the November 6 low of 1.3137.

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