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By XE Market Analysis February 4, 2020 2:54 pm
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    XE Market Analysis: Asia - Feb 04, 2020

    The Dollar headed mostly higher in N.Y. trade on Tuesday. The DXY touched four-session peak of 98.00. Incoming data had better than expected factory orders, which gave the USD a modest boost. Risk-on conditions prevailed, with Wall Street rallying sharply following gains in China equities, which came following the second day of PBoC stimulus injections. Treasury yields were firmer as well. EUR-USD dipped to 1.1033 from over 1.1050, as USD-JPY rallied over 109.50 from near 109.10. USD-CAD was rangebound between 1.3290 and 1.3262. Cable recovered from London losses, topping at 1.3045.

    [EUR, USD]
    EUR-USD dipped to intra day lows of 1.1037 following the stronger U.S. manufacturing ISM, then bounced to 1.1067 highs into the London close. The pairing had posted seven-session highs of 1.1097 on Friday. General risk-on conditions prevailed through the session, though the coronavirus issue will likely return to haunt markets. As a result, further safe-haven USD buying can be expected, which will likely limit EUR-USD upside for now.

    [USD, JPY]
    USD-JPY printed eight-session highs of 109.39, up from opening lows of 109.10, and overnight lows of 108.55. The improved risk backdrops has been the rally's driver, following gains in China's equity markets, and a surge on Wall Street. Panic conditions resulting from the coronavirus outbreak appear to have eased some, as some in the medical field begin to downgrade the outbreak's overall impact. CNBC reported Johns Hopkins senior scholar Dr. Amesh Adalja saying the new coronavirus will likely cause yearly outbreaks (like the flu), with most of the cases being mild. The coronavirus U.S. patient from Washington has been released from hospital, now recovering at home, which has likely helped risk sentiment as well.

    [GBP, USD]
    Cable bounced to 1.3045 after pegging a low just after the open of the London interbank market at 1.2941. The January construction PMI survey revealed a solid bounce in January, but the release post-dated most of the gains in the pound. Short covering was the likely driver after the pairing posted 6-week lows. UK Prime Minister Johnson yesterday in a keynote speech made clear that his government is not looking for close regulatory alignment with the EU, which is likely to keep the UK currency's upside in check.

    [USD, CHF]
    EUR-CHF traded either side of 1.0700 through the N.Y. session, up from Monday's trend low of 1.0666, as risk taking conditions prevailed. Concerns about contagion of the coronavirus have been affecting market sentiment across the world. The franc had already rallied strongly earlier in January following the surprising decision by the U.S. to add Switzerland to its list of currency manipulators earlier in the week. The U.S. move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD topped at 1.3302 in Asian trade, just a point under the two-month highs of 1.3303 seen on Monday, later easing to 1.3262 into the London close. A modest advance in oil prices, along with general risk-on conditions prompted some position squaring, though oil and the CAD are likely to remain soft until the economic impact of the coronavirus is better understood. Indeed, WTI crude dipped under the $50 level later in the session. USD-CAD resistance is set at the November high of 1.3328, with support at the 200-day moving average at 1.3226.

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