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By XE Market Analysis July 29, 2020 3:57 pm
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    XE Market Analysis: Asia - Jul 29, 2020

    The DXY was moderately lower though the N.Y. morning session, with trade cautious ahead of the FOMC announcement. Incoming early data saw the advance June goods trade deficit narrow more than expected, and pending home sales for June soar. The dollar headed lower following the FOMC announcement, where the statement said the ongoing pandemic "will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term." Powell started the press conference saying the path forward for the economy remains "extraordinarily" uncertain. EUR-USD topped at trend highs of 1.1795, up from 1.1780, as USD-JPY hit trend lows of 104.81, down from near 105.00. USD-CAD fell from 1.3375 highs to 1.3331. GBP crossed above the 1.3000 mark. Wall Street headed to session highs after the Fed, while yields nudged slightly lower.

    [EUR, USD]
    EUR-USD remained buoyant, pulling up to within just two points from Monday's 1.1782 trend highs ahead of the FOMC announcement. Tuesday's modest Dollar rebound, largely attributed to short covering, was short lived, as the DXY today touched fresh low, to levels last seen in March of 2018. The Euro popped to 1.1805 highs following the Fed announcement, with traders interpreting the statement as dovish overall. Economic uncertainty related to COVID has weighed on the USD, while the EU pandemic recovery fund has supported the Euro over the past couple of weeks. More USD downside can be expected for now.

    [USD, JPY]
    USD-JPY recovered mildly from the 7-week low of 104. 81 low seen in London morning trade, since rallying to 105.21 highs, then dipping back under the 105.00 mark. The outlook remains uncertain for the USD, as the fate of the stimulus package up in the air, and the COVID spikes crimping the economic recovery picture. The Dollar appears to have lost its safe haven appeal of late, and as a result, USD-JPY should have further downside potential should risk-off related to the economy continue. The pairing fell to trend lows of 104.81 after the dovish FOMC announcement.

    [GBP, USD]
    Sterling outperformed over the last day, seeing Cable rise to a new five-month peak of 1.2995 in N.Y. morning trade, putting the pairing back at pre-lockdown levels. Recent dollar underperformance has been a driver of GBP-USD strength. Nevertheless, there are some convincing bullish arguments in market narratives. One is the pick-up in the pace of economic recovery in the UK. There has also been signs that have led markets to factor improved odds for a EU-UK trade deal. We now see scope for Cable returning to levels around the 1.3500 mark. The Pound headed over 1.3000 for the first time since since March 10 after the FOMC.

    [USD, CHF]
    EUR-CHF retreated to the mid-1.07s in N.Y. on Wednesday, after topping at 1.0841 on Monday. The cross continues to be supported however, by 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 remained above the seven-week low of 1.3329 printed on Tuesday, bottoming at 1.1338 ahead of the North American open. The pairing chopped around between 1.3371 and 1.3341 through the morning session, more recently peaking at 1.3376. USD-CAD remains near the top of its intra day trading band despite WTI crude prices remaining above the $41.00 mark, and the improved risk backdrop. Oil demand still appears to have downside risk, as worsening pandemic risks weigh on the economic outlook. As a result, further USD-CAD downside may be limited going forward. Following the FOMC announcement, USD-CAD headed back to near lows on general USD softness.

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