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By XE Market Analysis July 31, 2020 4:30 pm
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    XE Market Analysis: Asia - Jul 31, 2020

    The DXY recovered from two-year lows of 92.55 seen overnight, then rallied to 93.53 highs through the morning session. Week-end and Month end Dollar short covering appeared to be the main driver. Incoming data was mixed, leaving personal income and PCE a bit weaker then expected, the Chicago PMI better, while the final U. Mich sentiment softened as well. Wall Street traded lower through the morning, though perked up in afternoon trade, as House Democrats said they would cancel the August recess, and stay in D.C. to work on the stimulus package. All three major indices closed in the Green. Treasury yields remained near historic lows. EUR-USD eased from early lows of 1.1853, later hitting a low of 1.1763. USD-JPY bottomed at 104.93 before rallying to 106.06. USD-CAD was rangebound between 1.3436 and 1.3369. GBP-USD pulled back from trend highs at 1.3170 to 1.3081.

    [EUR, USD]
    EUR-USD topped 27-month highs of 1.1908 in early London. Many days of gains this week and last and an approaching week-end and month-end prompted a solid round of profit taking. Ahead of the London close, the pairing had fallen back to under 1.1765. We see further EUR-USD gains going forward, as economic uncertainty related to COVID should continue to weigh on the USD, as cases continue to climb, while the EU pandemic recovery fund should keep the EUR supported.

    [USD, JPY]
    USD-JPY rebounded from the near five-month low of 104.19 seen in Asia, running up to 106.06 into the London close. As was the case with EUR-USD on Friday, pre-weekend month-end position squaring drove the pairing higher. USD-JPY had dropped from 106.21 highs on Monday to Friday's 104.19 lows. The pairing rose despite the risk-off backdrop, as the Yen generally strengthens as equities fall. We expect further USD-JPY downside once the crowded short trade neutralizes.

    [GBP, USD]
    Cable hit fresh highs, printing a new five-month peak at 1.3170 while. There didn't appear to be any specific catalyst behind Sterling's rally, and indeed, the pairing fell back to 1.3081 lows in N.Y., likely on month-end profit taking. UK trade representative Frost said Thursday that trade talks with the EU remained "deadlocked, though Prime Minister Johnson said that the two sides were "not that far apart." The pound's gains today should be viewed in context of a significant shift in valuations of major currencies. Month end rebalancing may also have been a factor, especially heading into August, which is the peak of the summer holiday season in London and Europe.

    [USD, CHF]
    EUR-CHF was steady in the mid-1.07s in N.Y. on Friday, after topping at 1.0841 on Monday. The cross continues to be supported however, by broad outperformance of the Euro 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 continues 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.

    [USD, CAD]
    USD-CAD was relatively quiet through the North American session, remaining inside of Thursday's trading band. The pairing topped at 1.3436 early in the session, after largely shrugging of the Canada GDP and prices data, later falling back to 1.3369, before topping over 1.3415. Wednesday's 7-week low of 1.3331 now marks support, with resistance at the July 22 high of 1.3484, then at the 20-day moving average of 1.3523.

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