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By XE Market Analysis February 6, 2020 2:27 pm
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    XE Market Analysis: Asia - Feb 06, 2020

    The DXY rallied to near four-month highs of 98.57 in N.Y. trade on Thursday, continuing to be driven higher by mostly outperforming U.S. economic data. Friday's January employment report will be key going into the weekend, where risk to the NFP print would appear to be to the upside following sharp gains revealed by the ADP report on Wednesday. Thursday's numbers had jobless claims lower than expected, and in-line gains for Q4 productivity. EUR-USD printed four-month lows under 1.0965, while USD-JPY rallied to 1.1000 highs on the back of another day of higher equities. GBP-USD dove under 1.2925 on ongoing Brexit trade concerns. USD-CAD meanwhile, headed to two-month highs of 1.3309.

    [EUR, USD]
    EUR-USD broke through its recent trading base, falling to four-month lows of 1.0964. Sell-stops under the November 29 bottom of 1.0981 were reportedly tripped on its way to the lows. Incoming U.S. data has outperformed that of Europe of late, giving the Dollar a lift. Earlier in the year, EUR-USD losses were driven by coronavirus related USD safe-haven buying. As panic over the outbreak has subsided some, we did see some of those flows reverse late last week. Friday's employment report will be key going into the weekend, where risk to the NFP print would appear to be to the upside following sharp gains revealed by the ADP report on Wednesday.

    [USD, JPY]
    USD-JPY topped at 109.99, levels last seen on January 22, as risk-on prevails for the fourth-straight session. BoJ deputy governor Wakatabe said on Tuesday “The BoJ won’t hesitate to take additional easing steps if risks become very large and increase the chance that the momentum toward achieving its 2% price target will be lost”. This likely weighed some on the Yen as well, though further easing measures are not thought to be likely unless the coronavirus gets out of hand. USD-JPY resistance comes at the January high of 110.30, with support seen at 109.53, the 20-day moving average.

    [GBP, USD]
    Cable remained heavy, heading under 1.2925, levels last seen in late December. Brexit related concerns remain a bearish headwind, while the National Institute of Economic and Social Research (NIESR), the UK's oldest think tank, said today that the government's economic plan, which is focused on fiscal stimulus to revamp the UK's infrastructure, will be stymied by the prevailing lack of spare capacity in the economy, which would risk driving up inflation and forcing higher interest rates. The NISER said that any positive impact on the economy from higher spending would be less than 0.5% of GDP over the long run, compared with an estimated 3-4% cost of Brexit, forecasting that the government would fall well short of achieving its growth target of 2.8% per year.

    [USD, CHF]
    EUR-CHF on either side of 1.07 in N.Y. on Thursday, 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 posted two-month highs of 1.3309, up from pre-open lows of 1.3268. Gains have come as WTI crude prices head lower once again, following an overnight oil rally, which came on hopes for an OPEC+ production cut, in light of coronavirus related demand destruction in China. Russia and Saudi Arabia remain in disagreement over output reduction, which has seen oil prices fall back toward the $50.00 level. USD-CAD has run into sellers over the 1.3300 level every day this week, though buy-stops are now reported from the 1.3010 level. Canada's January jobs report is due Friday as well.

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