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By XE Market Analysis July 1, 2019 2:24 pm
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    XE Market Analysis: Asia - Jul 01, 2019

    The Dollar bounced in N.Y. trade on Monday, taking the DXY to eight-session highs of 96.82 from pre-open lows of 96.36. The agreed trade truce over the weekend appeared to have lowered expectations for aggressive Fed easing, which supported the USD through the session. Wall Street opened sharply higher, though bled a good chunk of gains through the session. The trade truce is just that, a truce, and there will likely be many moments of disagreement and rhetoric to come from both sides in the coming weeks. With this in mind, Wall Street will likely remain cautious going forward. EUR-USD fell under 1.1285 from near 1.1360, with soft EU PMIs weighing. USD-JPY remained supported, though lost momentum near 108.50, as stocks faltered. USD-CAD rallied over 1.3140 as oil prices retreated, while Cable fell under 1.2635, dragged lower by the Euro. Dollar direction from here is liable to remain uncertain going forward, as trade, the Fed, and incoming data could all combine to keep trade choppy.

    [EUR, USD]
    EUR-USD faded to seven-session lows of 1.1290, down from the 1.1360 highs seen ahead of the N.Y. open. Weaker European PMI data, along with more dovish ECBspeak, saw sentiment toward the Euro soured some. For the USD side of the equation, markets have toned down their Fed rate cut expectations, leaving the odds of a 50 bp cut in July a long shot. As a result, the Dollar has posted gains, helped by the trade truce agreed over the weekend. There are still likely to be further trade fireworks going forward, but as long as the U.S. economy continues to outperform rivals, USD downside should be limited going forward.

    [USD, JPY]
    USD-JPY steadied above 108.20 in N.Y. trade, later topping just under 108.50, after gapping higher at the Asian open, later topping near two-week highs of 108.53 in London morning trade. The trade truce of course, was the driver of the rally, with subsequent support coming on sharp global equity gains, as safe-haven flows into the Yen reversed course. On the U.S./China trade front, there will almost certainly be bumps in the road as negotiations move forward, so USD-JPY's upside path is anything but guaranteed. Support now comes in at the 20-day moving average of 108.08, with resistance now seen at the overnight high.

    [GBP, USD]
    Cable touched 1.2632 lows in N.Y. trade, after taking a hit in London in the wake of underwhelming UK June manufacturing PMI data today, which laid bare the impact that prolonged Brexit uncertainty and slowing growth on continental Europe is having on the UK economy. . Given the lowering of Fed easing expectations away from a 50 bp move as soon a next month, the pound is likely to remain downwardly biased against the Dollar, particularly as the big miss in today's manufacturing PMI portends downside risk to Wednesday's release of the services PMI report. As for Brexit, the news flow has remains quiet, especially in terms of substantive developments. That will change as soon as the new prime minister, most likely Boris Johnson, takes up the reigns.

    [USD, CHF]
    EUR-CHF recovered to over the 1.1160 mark in N.Y. trade on Monday, regaining some ground following the U.S./China trade truce agreed over the weekend. The outcome went some way to calm the global fear backdrop, allowing the CHF to unwind some of last week's safe-haven gains. CHF buying was noted into the weekend, as a safety bet ahead of the Trump/Xi meeting in Japan. Ongoing trade concerns, and tensions between the U.S. and Iran will likely keep the CHF somewhat supported for now.

    [USD, CAD]
    USD-CAD opened the Asia session at 1.3070, down from Friday's close near 1.3100. The initial dip came with WTI crude's opening rally, driven by the U.S./China trade truce. The pairing remained choppy between 1.3108 and 1.3085 through mid-morning. Later, despite OPEC's agreement to extend production caps through the end of the year, WTI crude sold off to $58.34 from highs over $60.20, resulting in a USD-CAD rally over 1.3140. Reduced Fed rate cut expectations should keep the USD relatively buoyant going forward. Friday's trend low of 1.3060 is the next support level.

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