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By XE Market Analysis February 7, 2020 2:58 pm
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    XE Market Analysis: Asia - Feb 07, 2020

    Another day, another Dollar rally, taking the DXY to a new four-month peak. The index printed higher daily highs four days running this week, with gains largely coming on the back of solid incoming U.S. data, culminating with a strong January jobs report on Friday. Wall Street lost ground, likely on profit taking into the weekend, following four-straight higher closings through the week. EUR-USD fell to four-month lows of 1.0942, while USD-JPY moved over 109.80 from 109.55. USD-CAD dipped on a better Canada jobs report, though later lifted back over 1.335. GBP-USD fell to levels last seen on November 29, basing at 1.2892.

    [EUR, USD]
    EUR-USD printed fresh four-month lows of 1.0942 after the London close, down from mid-morning highs of 1.0976. The solid U.S. employment report helped Dollar sentiment though the session, with a bit of save-haven USD buying thrown in ahead of the weekend. Prior to that, the Euro came under pressure following weak German, French and Spanish production data. U.S. data in general has been solid of late, and should keep a lid on EUR-USD going forward. The October low of 1.0879 is beginning to appear at the horizon, with a move below there taking the pairing to levels last seen in May of 2017.

    [USD, JPY]
    USD-JPY bottomed at 109.55, matching its 20-day moving average, before bouncing over 109.80. Risk-taking levels slipped on Friday, with Wall Street heading lower from record highs, largely on profit taking into the weekend. The uncertainty surrounding the coronavirus outbreak remains front and center, and will keep USD-JPY bulls cautious for now. The 110.00 level remains solid resistance looking ahead.

    [GBP, USD]
    Cable fell to two-plus month lows of 1.2892. Brexit related concerns are likely to remain a bearish headwind on the Pound, while the National Institute of Economic and Social Research (NIESR) said yesterday 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 steadied some above Monday's trend low of 1.0666 through much of the week, 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 fell to 1.3278 from near 1.3315 following the better than expected Canada jobs report, though quickly rebounded to unchanged levels, as the stronger U.S. employment report offset. CAD weakness is likely to continue, as oil prices remain weak due to demand destruction in China, due to the coronavirus epidemic. The market will continue to target November highs of 1.3328.

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