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By XE Market Analysis January 22, 2020 2:34 pm
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    XE Market Analysis: Asia - Jan 22, 2020

    The FX market remained quiet in N.Y. on Wednesday, leaving most Dollar pairings little changed. The DXY was lifted slightly in early trade, later giving back its gains. Wall Street was choppy, though higher through the day. Treasury yields pulled back slightly, on a bit of residual sage-haven flows on the back of the coronavirus scare. EUR-USD bottomed at 1.1070, later topping 1.109-, while USD-JPY slipped from 109.99 to 109.83. USD-CAD soared 100 points to over 1.3150 on a dovish BoC announcement, while Cable topped over 1.3150, later settling near 1.3125. The ECB meeting will headline on Thursday, along with U.S. jobless claims.

    [EUR, USD]
    EUR-USD dipped to nearly one-month lows of 1.1070 immediately following the better U.S. existing home sales outcome. The pairing had topped at 1.1099 in early N.Y. trade. Since then, a lack of follow through selling in a lightly trade market has seen short covering set in, lifting the pairing back over the 1.1090 level. The 50-day moving average at 1.1102 marks resistance now, with the December 24 low of 1.1069 providing interim support. We look for sideways action into Thursday's ECB meeting and press conference.

    [USD, JPY]
    USD-JPY took a modest dip, bottoming at 109.83 in early trade, after opening the session just under the 110.00 mark. Wall Street has added to opening gains, which limited further erosion through the day, while the sense of panic seen on Tuesday in light of the corona virus outbreak appears to have ebbed for now, was also supportive. The overnight high of 110.10 is the next resistance level, with Tuesday's 109.76 low becoming support.

    [GBP, USD]
    Cable printed a two-week high at 1.3153 in early N.Y. The January U.K. CBI's industrial trends survey showed business optimism rising to +23 from -44. Although headline activity remained low, the data provided a sign that a post-election boost in economic activity may be happening as pent-up investment and decision making are freed by the lifting of the Brexit and political fog. This CBI report followed yesterday's above-forecast UK labor report. The data have seen UK markets de-scale expectations for the BoE to cut rates as soon as next week's policy meeting. We have been arguing that the BoE is likely to refrain from cutting rates at this juncture, and instead opt to ratchet up dovish guidance.

    [USD, CHF]
    EUR-CHF extended recent losses to a fresh 33-month low at 1.0730. This is the sixth week out of the last seven that the cross has declined, with losses accelerating this week. The reason for the divergence in the two main currency safe-haven currencies, the yen and the franc, is the U.S. Treasury having added Switzerland to its list of currency manipulators this week. This 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). The U.S. argues that Switzerland needs a more expansive fiscal policy. The CHF-JPY cross is now trading at 13-month highs after rallying by almost 5% from levels seen in late November

    [USD, CAD]
    USD-CAD ticked up to 1.3092 highs in Asian dealings, later pulling back to 1.3050 in early North American trade. Softer oil prices and a generally firmer USD supported overnight, though profit taking was noted into the 10:00 EDT BoC policy announcement. USD-CAD rallied following the BoC policy announcement, where rates were left unchanged, as expected. The pairing topped to over 1.3150, up from 1.3050 as the Bank's statement said "Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October", along with "Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft." The BoC expects growth to pick up in 2021, though for the FX market, current conditions are what mattered.

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