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By XE Market Analysis July 21, 2020 2:44 pm
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    XE Market Analysis: Asia - Jul 21, 2020

    Risk-on conditions, driven by good news on the vaccine front and the EU deal on a pandemic recovery fund, saw the Dollar under pressure in N.Y. on Tuesday, taking the DXY to four-plus month lows of 95.20, down from early highs of 95.80. Unwinding of safe-haven flows weighed on all the major USD pairings. Wall Street opened in the green, with the NASDAQ posting fresh record highs before turning lower on profit taking backed selling. Treasury yields were narrowly mixed. EUR-USD rallied to 18-month highs of 1.1518, up from early lows of 1.1425, while USD-JPY fell to 106.72 from pre-open highs of 107.32. USD-CAD eased from morning highs of 1.3467 to 1.3431. Cable meanwhile, hit six week highs of 1.2716, up from opening lows of 1.2674.

    [EUR, USD]
    EUR-USD traded above the previous high, seen on March 9 at 1.1494, resulting in a new trend high of 1.1495, levels last seen in January of 2019. The Euro had been supported by the EU's deal on a pandemic recovery fund and the next budget, which will add fiscal support to the ECB's monetary policy stimulus. In addition, risk-on conditions saw safe-haven flows into the USD reverse some today. EUR-USD buy-stops were later tripped over the 1.1500 mark, resulting in a move to 1.1518 highs, an 18-month peak. The next upside target is the January 10, 2019 high of 1.1572.

    [USD, JPY]
    USD-JPY dipped to four-session lows under 106.75, down from 107.32 seen into the open. Risk-on conditions have weighed on the Dollar overall, which has seen the DXY fall to four-plus month lows of 95.20. Positive news on the COVID vaccine front has been supportive of markets in general, though with both the Dollar and Yen seen as safe-haven currencies, the two tend to offset one another during both risk-on and risk-off environments, limiting USD-JPY movement. Indeed, the pairing has been held inside a 106.50 to 107.50 trading band for over a week.

    [GBP, USD]
    Cable hit a six-week high at 1.2752 in late morning trade, coming from ealy lows of 1.2674. The Dollar was broadly softer through the session, as risk-on conditions prevailed due to good news on the vaccine front, and the agreement on the EU's EUR 750 bln pandemic recovery package. Given the ongoing uncertainty of Brexit trade negotiations, and forecasts for a lagging U.K. economic recovery, further Sterling gains may be limited.

    [USD, CHF]
    EUR-CHF retreated from one-month highs of 108.06 seen last Thursday, pulling back to 1.07200 lows on Monday, though touching 1.0761 highs on Tuesday, as the Euro advanced following agreement to the EU pandemic recovery fund. The pairing had fallen back over the last few weeks, though has continued to trade comfortably above the series of lows near 1.0500 that were seen from March through to mid May. Committed SNB intervention prevented the 1.0500 level from being breached over this period. SNB policy, which stuck with negative rates for the foreseeable future and strengthened its commitment to intensify FX intervention if necessary to keep the CHF under control.

    [USD, CAD]
    USD-CAD fell to one-plus month lows of 1.3431 following the Canada retail sales report, which slightly missed consensus forecasts, but nonetheless was very strong. USD-CAD had been heading lower through the overnight session, as risk-on conditions prevailed, and as oil prices headed to four-month highs. The next support level comes at 1.3396, which was the June 11 low.

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