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By XE Market Analysis February 5, 2020 3:25 pm
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    XE Market Analysis: Asia - Feb 05, 2020

    A strong ADP employment report supported the Dollar through the N.Y. session on Wednesday, taking the DXY to two-month highs of 98.29 from 97.91 overnight lows. A better than expected services ISM added to the USD's bid tone. Wall Street and Treasury yields moved higher as well. EUR-USD dipped to 109.95 lows from near 1.1025, as USD-JPY made its way from 109.70 at the open to 109.85. USD-CAD was rangebound between 1.3270 and just over 1.3300. Cable meanwhile, slid under 1.2960, later recovering over 1.3000. Overall, an outperforming U.S. economy should continue to support the Dollar.

    [EUR, USD]
    EUR-USD continues to find buyers under the 1.1000 level, bottoming at 1.0995, but on six-session lows. The better ADP jobs outcome took the pairing from near 1.1025 to current lows, with eyes now on the January 29 base of 1.0992. Under there, the November 29 base of 1.0981 comes into focus. An outperforming U.S. economy should continue to support the Dollar, while save-haven flows into the USD should continue to an extent, at least until the damage from the coronavirus epidemic becomes more clear.

    [USD, JPY]
    USD-JPY printed two-week highs of 109.85, garnering support from much better U.S. ADP jobs data, and resulting risk-on conditions, which have seen Wall Street and Treasury yields surge higher. While still a threat to global growth, the near-panic reactions to the coronavirus outbreak seen last week appear to have calmed some, allowing risk-taking levels, and USD-JPY to move higher.

    [GBP, USD]
    Sterling came under pressure in early N.Y., more than reversing gains seen following the unexpected upward revision in final January PMI data out of the UK. Cable tumbled about a big figure in making a low at 1.2957, nearing Tuesday's six-week low at 1.2941. The PMI data showed an unleashing of delayed decision making and pent-up demand in the wake of the general election. The price action in the pound however, along with better U.S. ADP jobs data, was telling of an overall bearish assessment of where Brexit is headed. The market consensus is that a no-deal Brexit, and the shift to trading on WTO terms that would entail, would be economically damaging to the UK.

    [USD, CHF]
    EUR-CHF traded to one-week highs of 1.0728 highs in 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 tested recent highs, topping at 1.3303 earlier in the session. The pairing touched 1.3260 overnight, as oil prices rose, though has since edged back to the 1.3300 mark. General USD strength has supported, while China coronavirus concerns have kept the CAD under some pressure, with Canada commodity exports expected to be impacted should the epidemic grow. The BoC's recent dovish turn should keep USD-CAD downside contained as well.

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