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By XE Market Analysis January 3, 2020 2:33 pm
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    XE Market Analysis: Asia - Jan 03, 2020

    The Dollar and Yen rallied some overnight on Friday, supported by safe-haven buying following the U.S. drone strike in Iraq, which killed a top Iranian general. The USD later gave back gains as the initial fears of immediate Iran reprisal faded, the U.S. manufacturing ISM was much weaker than expected, and as positions were unwound into the weekend. Wall Street was sharply lower early in the session, though managed to pare losses in afternoon trade, while Treasury yields fell on haven buying. EUR-USD had fallen to 1.1125 lows into the open, later topping at 1.1180. USD-JPY rallied from 1.0790 to 108.26, later testing the lows. USD-CAD was rangebound between 1.2973 and 1.2997, while Cable idled between 1.3109 and 1.3068.

    [EUR, USD]
    EUR-USD fell to six-session lows of 1.1125 from overnight highs of 1.1179 into the N.Y. session. The USD benefited from early safe-haven flows following the drone strike in Iraq, though later lost some luster after a firmer December Germany CPI outcome, and a much weaker U.S. manufacturing ISM. The pairing later peaked at 1.1180 into the London close. Reprisals for the killing of the top Iranian general will keep traders on their toes in the coming days, where further military/terrorism actions from Iran, will likely add further support to the Dollar.

    [USD, JPY]
    USD-JPY printed two-month lows of 107.90 in the aftermath of the U.S. drone strike in Iraq, as risk taking levels evaporated, bolstering the safe-haven Yen. The pairing matched the overnight low of 107.90 in N.Y. trade, after managing a bounce to just 108.26 early in the session. Iran's promise of revenge will likely keep USD-JPY's upside contained going forward, as the market ponders the scope for military escalation in the region.

    [GBP, USD]
    Cable headed moderately higher after posting a one-week low at 1.3053 ahead of the N.Y. open. The pound, despite rallying strongly during the last part of last year, is starting the new year trading at a discount of about 8-9% in trade-weighted terms from levels prevailing ahead of the vote to leave the EU in 2016. Market narratives have been highlighting expectations for tough negotiations ahead for the UK with the EU and other global economies and trading blocs. The reality is that it will take years to replicate the trading terms the UK has enjoyed as part of the EU's single market. Brexit is set to happen at the end of January, at which point the UK will enter a 11-month transition period before leaving the EU outright at the end of 2020.

    [USD, CHF]
    EUR-CHF dropped to a four-month low at 1.0824, weighed on by safe-haven positioning on news of the U.S. military strike that took out a senior Iranian officer. The new low is the culmination of quite a sharp drop from the seven-week peak of December 13, at 1.1033. The cross later recovered to 1.0865 highs as risk-off conditions eased some into the weekend.

    [USD, CAD]
    USD-CAD was choppy inside of recent ranges overnight, topping at 1.3000 following the U.S. drone strike in Iraq, as the USD turned higher on safe-haven flows. Later, the pairing pulled back to 1.2959 lows as WTI crude spiked nearly 4%. Since then, USD-CAD has climbed back to 1.3005, as oil prices pull back, and as general risk-taking levels remained subdued. Recent highs and lows of 1.3010, and 1.2950 should hold up for now.

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