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By XE Market Analysis January 27, 2020 3:11 pm
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    XE Market Analysis: Asia - Jan 27, 2020

    The Dollar was mostly higher in N.Y. trade on Monday, with gains driven by noted save-haven flows. The uncertainty of the coronavirus threat took U.S. Treasuries sharply higher, while weighing on other risk assets such as oil. Wall Street turned deep into the red, following the path of global equities seen overnight. Incoming data was light, though new home sales missed expectations, though had little market impact. EUR-USD dipped to trend lows of 1.1010, while USD-JPY remained heavy, bottoming at 108.86 on the back of risk-off conditions. USD-CAD topped at 1.3200, on weak oil prices, later easing modestly to 1.3175. Cable was again under some pressure, bottoming at 1.3041. Should the current global health scare continue to worsen, further USD gains can be expected.

    [EUR, USD]
    EUR-USD printed near two-month lows of 1.1010, with the Dollar benefiting from save-haven flows amid global risk-off conditions. In addition, the decline in the January Germany Ifo report to 95.9 from 96.3 in December did the Euro no favors. Expectations had been for a robust rise to 97.0 after the strong round of ZEW and national PMI reports. The 1.1000 mark is now a good psych support level, and a break there will see the target moved to the November 29 base of 1.0981.

    [USD, JPY]
    USD-JPY hit near three-week lows of 108.74 in early Asian trade overnight, gapping down from the 109.29 N.Y. close seen on Friday. Risk-off conditions have weighed on the pairing, as the coronavirus scare ramps up in China, and worldwide. Plummeting equity markets, along with sliding crude oil prices, falling Treasury yields, and soaring gold prices have all combined to keep pressure on the risk-sensitive USD-JPY. The next significant support level comes at 108.50, which represents the 200-day moving average.

    [GBP, USD]
    Cable fell from London morning highs of 1.3104 to a low of 1.3041 into the London close. The selling-into-gains reaction seen lately is telling of an underlying bearish view of the pound. Brexit, and more particularly signs that the government is pursuing a strong break from the EU, are keeping a cap on the UK currency. Of note was the UK Chancellor of the Exchequer Javid's clear emphasis in a recent FT interview that the government is seeking divergence from the EU and not a closely aligned post-Brexit relationship. The question of divergence versus close alignment has been fundamental in the Brexit debate, with the former treated by markets as a positive and the latter a negative for the pound.

    [USD, CHF]
    EUR-CHF came under consistent pressure from the open on Monday, printing a 33-month low at 1.0676. The new low in the EUR-CHF cross reflected a further a richening in safe-haven premiums in global markets. Concerns about contagion of the coronavirus have been affecting market sentiment across the world. The franc had already rallied strongly earlier in the month 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 touched 1.3200 highs in early North American trade, levels last seen on December 13. Fears of economic slowing, driven by the coronavirus outbreak, and a subsequent fall in oil demand pushed WTI crude prices to over three-month lows of $52.16 earlier, weighing on the CAD. General risk-off conditions took a toll on the Loonie as well. With crude up over $1/bbl from earlier lows, USD-CAD has eased back to near 1.3175. Support now comes at the 50-day moving average of 1.3145.

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