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By XE Market Analysis July 28, 2020 12:54 pm
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    XE Market Analysis: Asia - Jul 28, 2020

    The Dollar stemmed its recent bleeding in N.Y. on Tuesday, though gains overall were modest. The DXY managed to hold above the two-year low seen Monday, bottoming at 93.50 before bouncing to 94.01 into the open. Incoming data was mixed, with June consumer confidence weaker than expected, and the July Richmond Fed index posting a slightly better outcome. Wall Street and yields were lower. Ongoing uncertainty on the progress on the U.S. stimulus bill was a drag on risk taking sentiment. EUR-USD chopped around 1.1701 and 1.1743, ending near its highs. USD-JPY eased from 105.38 highs to 1044.96, while USD-CAD ranged between 1.3407 and 1.3359. Cable hit 4-plus month highs of 1.2946, up from 1.2860 at the open.

    [EUR, USD]
    EUR-USD stayed under Monday's trend high of 1.1782, peaking in early N.Y. at 1.1743, before chopping between 1.1701 and 1.1743 through the remainder of the session. The modest USD correction was driven by a broad rebound in the dollar, which finally found its feet after a seven straight day run lower. A profit-taking drop from a new nominal record high in gold prices lent the dollar support. There has been a some impetus to cover dollar shorts into the Fed's two-day FOMC, withe announcement and press conference coming on Wednesday, and Friday's deadline for Congress to extend pandemic-era jobless benefits.

    [USD, JPY]
    USD-JPY fell from overnight highs of 105.68 to morning N.Y. lows of 105.05, marking a new better than four-month base in the process. The JPY picked up a safe haven bid during the London morning as stocks headed lower in Europe, alongside U.S. equity index futures. After the U.S. consumer confidence miss, USD-JPY printed its low of 104.96. With the Dollar having lost its safe haven appeal of late, given the uncertain U.S. economic outlook due to the virus, USD-JPY would appear to have further downside potential should risk-off continue.

    [GBP, USD]
    Cable printed a fresh trend high at 1.2946, a level last seen in early March. The gains were inspired by an FT article asserting that the EU is willing to drop its demand that the UK accepts EU state-aid rules and oversight of the European Court of Justice, and that "while further work is needed, a middle ground is clearly emerging". This followed a Reuters report that EU trade negotiator Barnier believes UK PM Johnson wants a deal, according to unnamed sources who attended a closed-door briefing he gave to national envoys of the EU 27. The Pound still remains the weakest of the main currencies on the year-to-date, so there is scope for sustained gains if markets perceive the odds for a deal are improving.

    [USD, CHF]
    EUR-CHF retreated to the mid-1.07s in N.Y. on Tuesday, after topping at 1.0841 on Monday, reflecting broad outperformance of the common currency and, possibly, the added influence of the SNB's intervening hand. Weekly sight deposit figures out of Switzerland suggest that the central bank has been continuing to sell francs regularly, as it has been since the consequences of the pandemic took a grip on markets, which had the impact of increasing demand for the Swiss currency, back in March. Recent general Euro strength has provided the cross support. 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 rallied from six-week lows of 1.3329 seen in Asia, peaking at 1.3407 in early North American trade, later falling to 1.3359 lows. The USD has turned higher more broadly, in what appears to be Dollar short covering ahead of Wednesday's FOMC announcement. The DXY had fallen for six-straight sessions, as sentiment over the U.S. growth outlook had been dented due to spikes in COVID cases. Over that time frame, the index had fallen from 96.33 on July 17 to 93.48 on Monday.

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