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By XE Market Analysis January 6, 2020 2:07 pm
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    XE Market Analysis: Asia - Jan 06, 2020

    The Dollar rallied modestly through the N.Y. session on Monday, with gains driven by safe-haven buying. The worsening geopolitical backdrop should limit USD downside for the time being, as traders brace for retaliation from Iran, and potential for further escalation. Wall Street opened sharply lower, though managed to recover a good chunk of early losses through the day. Treasury yields were slightly lower, again on safe-haven buying. EUR-USD opened near highs just over 1.1200, later easing to 1.1181 lows. USD-JPY recovered from trend lows of 107.77 seen overnight, managing a high of 1.0841 in afternoon trade. USD-CAD was range bound, pulling back from 1.2990 to under 1.2960, while GBP-USD held gains made in London morning trade, topping at 1.3175.

    [EUR, USD]
    EUR-USD hit 1.1206 highs into the N.Y. open, later easing to 1.1181 low in late morning trade. European morning gains from near 1.1160 were attributed to an upward revision to the final December Eurozone services PMI, to 52.8 from 52.4. Safe-haven USD buying later resulted in a modest pullback. Potential for escalation between the U.S. and Iran may keep the Dollar underpinned going forward.

    [USD, JPY]
    USD-JPY dipped under Friday's near three-month low of 107.83, printing 107.77 before finding some support. Market participants have bid up the Yen since late last week, with geopolitical concerns driving the risk-sensitive JPY. Risks for a deepening conflict between the U.S. and Iran has been the driver. President Trump threatened "major retaliation" if Iran responded to the U.S. elimination of one of Iran's top generals, while Tehran vowed to expel the U.S. from the region. USD-JPY posted a modest rally during N.Y. hours, with the pairing topping over 108.40 as Wall Street severely pared opening losses.

    [GBP, USD]
    Sterling consolidated gains to 1.3175 seen during the London morning session, which had been sparked by above forecast PMI data out of the UK and Eurozone, which encouraged buying in both Cable and EUR-USD. Brexit will finally become a reality in just over three weeks, at which point the UK will enter an 11-month transition period before leaving the EU outright at the end of 2020. Most trade experts think this is too short a time frame for a new trading deal between the UK and EU to be achieved, let alone establish global trade deals. This backdrop should curtail the pound's upside potential in 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 range bound to start the week, though remains near the 14-month low of 1.2949 posted on December 31. The pairing ranged between 1.2987 and 1.2964 since the Asian open overnight. Surging oil prices on the back of geopolitical concerns, have been the main driver of CAD strength, and with prospects for further oil price gains, given the uncertainty in the mid-east, USD-CAD downside remains the riskier side.

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