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By XE Market Analysis July 31, 2019 4:04 pm
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    XE Market Analysis: Asia - Jul 31, 2019

    The FX market was very quiet ahead of the FOMC announcement in N.Y. on Wednesday, largely maintaining well-worn ranges. The Dollar later rallied following the Fed announcement, where rates were cut by 25 basis points, as widely expected. The statement cited uncertainty in the global outlook and muted inflation as their rationale for cutting rates. Powell sank stocks and took the USD to highs after he said today's cut was not necessarily the beginning of a lengthy cutting cycle. There were two dissenters on the FOMC committee. USD-JPY popped to 108.99 from near 108.50, while EUR-USD fell to 1.1065 from 1.1135. Overall, a less dovish outcome than many had expected. USD-CAD had dipped early on stronger Canada GDP, though rallied post-Fed to one-month highs of 1.3215. Cable rallied to 1.2250 before the Fed, later pulling back to lows under 1.2135.

    [EUR, USD]
    EUR-USD eased from early highs of 1.1152 through the morning session, bottoming at 1.1120 ahead of the FOMC, then falling under 1.1065 following the rate cut, and after Powell said today's cut isn't necessarily the start of an easing cycle. The less dovish than expected FOMC statement and Powell press conference supported the Dollar, allowing the Euro to print 26-month lows. Powell left the door open for additional easing, but he won't likely satisfy expectations for a string of rate cuts into 2020.

    [USD, JPY]
    USD-JPY managed just a 108.49 to 108.65 since the N.Y. open, as traders continued to sit on their hands into the 14:00 EDT FOMC announcement. The Fed did indeed cut by the expected 25 basis points, though overall, the statement was perhaps not as dovish as expected. As a result, USD-JPY rallied to 108.90 from 108.50. USD-JPY resistance remains at 109.00, with a break above there likely to see the May 31 high of 109.62 targeted.

    [GBP, USD]
    Cable rallied through the N.Y. morning session, topping at 1.2249 highs, though the UK currency remains down by about 2% against both the the Dollar from week-ago levels. The extreme level of net short exposure that speculative accounts had been running on the pound, providing the conditions for a potential short squeeze. The rally was short lived however, as a less dovish than expected FOMC saw the USD rise across the board, taking Cable back under 1.2135.

    [USD, CHF]
    UR-CHF has settled after rebounding with gusto last week after the ECB refrained from hitting the rate-cut button on Thursday. The cross, which is sensitive to ECB policy, sprang to a recovery high of 1.1063 from a 24-month low at 1.0962. We still anticipate EUR-CHF to remain biased lower as the ECB shifted to an explicit easing bias, laying the groundwork for a comprehensive set of easing measures in September. The risk of a disorderly no-deal Brexit on October 31 is also in the mix, which is a bearish factor for the cross.

    [USD, CAD]
    USD-CAD fell to one-week lows of 1.3105 from over 1.3155 following the better May Canada GDP outcome, and later an oil rally which came following a larger than expected inventory draw. Softer IPPI and RMPI data likely tempered the pairing's fall. Later, as Powell indicated today's rate cut may no be the start of an ongoing cutting cycle, USD-CAD vaulted to one-month highs of 1.3215. As the USD rose, oil prices slid, applying more pressure to the CAD.

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