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By XE Market Analysis February 25, 2020 2:54 pm
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    XE Market Analysis: Asia - Feb 25, 2020

    The Dollar retreated again on Tuesday, largely driven lower by Fed rate cut expectations, with 25 basis points now fully priced into the Fed fund futures market. Incoming data weighed some on the greenback as well, as consumer confidence and the Richmond Fed index both missed expectations. Heightened fears of the spreading coronavirus tanked Wall Street and Treasury yields. EUR-USD climbed to nearly two-week highs of 1.0883, from 1.0833 lows. USD-JPY fell toward 109.90 from 110.70 as risk-off conditions prevailed. USD-CAD was range bound between 1.3269 and 1.3293.Cable meanwhile topped at 1.3018, a one-week high.

    [EUR, USD]
    EUR-USD touched near two-week lows of 1.0883, up from 1.0833 early in the session. Rising expectations for a Fed rate cut as soon as June have supported the pairing, weighing on the Dollar overall. Futures now have a 25 basis point June rate cut fully priced in. The USD's safe-haven status will likely limit EUR-USD's rise in the coming weeks, though the impact from the coronavirus will impact Dollar flow in the coming weeks.

    [USD, JPY]
    USD-JPY is on one-week lows, bottoming so far at 110.07, and down from opening highs over 110.70. the abrupt move lower came as Wall Street turned early gains into losses, on ongoing coronavirus fears. New cases in Italy, and a spike of cases in Iran, and elsewhere in the middle east have been the latest drivers of concern, resulting in another round of risk-off conditions. USD-JPY support comes at the psych 110.00 level, then at last Wednesday's low of 109.84.

    [GBP, USD]
    The Pound rose through the N.Y. session, topping at 1.3018, as markets digested the EU's publishing of its trade negotiation mandate with the EU, which stipulates that EU standards should only be "a reference point" in negotiations with the UK to form a post-Brexit trade agreement. The lack of an explicit demand for dynamic alignment has been taken a positive for the pound, suggesting there may sufficient flexibility for the UK and EU to reach an agreement. The pound will continue to be buffeted by news from the trade negotiation front. A deal between the UK and EU is possible by the end of the year despite the short time frame, given they are starting from perfect equivalence, though anything short of a comprehensive free trade deal would be a negative for the pound.

    [USD, CHF]
    EUR-CHF fell to 4 1/2 year lows of 1.0588, with the safe-haven franc rallying on the back of the spreading coronavirus epidemic. Switzerland reported its first case of the disease earlier today. U.S. health officials appear to have upped their concerns over the virus, with a U.S. CDC official saying “Ultimately we expect we will see community spread in the United States. It’s not a question of if this will happen but when this will happen and how many people in this country will have severe illnesses.” The Swiss franc can be expected to continue to rise.

    [USD, CAD]
    USD-CAD remained firm, though under Monday's two-week high of 1.3308. Another oil market selloff, along with another session of general risk-off conditions put a floor under the pairing today, which has limited downside to 1.3269. WTI crude traded to two-week lows of $50.38, as virus fears dent demand expectations. USD-CAD resistance is at the February 10 high of 1.3331. Further spreading of the coronavirus epidemic will likely result in a test of the highs over the coming sessions.

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