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By XE Market Analysis June 1, 2020 2:32 pm
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    XE Market Analysis: Asia - Jun 01, 2020

    The DXY fell to 12-week lows of 97.86 in London on Monday, later rallying back to 98.23 into the N.Y. open. Safe-haven USD buying was noted from the lows, following China's announcement it would cut back on agriculture imports from the U.S. Since then, the USD saw some of those flows reverse out of the Greenback as stocks mounted a modest recovery. EUR-USD remained under the trend high of 1.1153 seen in London, while USD-JPY remained range bound between 107.40-80. Cable meanwhile, rallied to near one-month highs of 1.2475. USD-CAD topped at 1.3738, later falling back to 1.3582, a fresh near three-month low. Incoming U.S. data included the May manufacturing ISM, and April construction spending, both of which were very weak, but better than forecasts, as has been the case since the pandemic, markets largely ignored the numbers.

    [EUR, USD]
    EUR-USD printed trend highs of 1.1153 during the London morning session, later falling back to 1.1101 in early N.Y., then trending up to 1.1140 into the London close. Expectations for the implementation of the EU's massive recovery fund have been Euro-supportive over the last couple of weeks, while over the same time frame, largely risk-on conditions have weighed on the Dollar's safe-haven status. The March 27 high of 1.1148 is the next upside target, with support now at 1.1070, representing last Friday's low.

    [USD, JPY]
    USD-JPY has been range bound since the N.Y. open, tracking between 107.76 and 107.54, and up from London lows of 107.39. Friday's two-week bottom of 107.07 provided good levels to buy Dollars into month-end, and the level hasn't been looked at again on Monday. The pairing is now back inside the narrow trading ranges seen for the two-weeks prior two-weeks, as risk-on/risk-off conditions have pitted the safe-haven USD against the safe-haven JPY.

    [GBP, USD]
    Cable headed higher in N.Y. trade, rallying to a near four-week peak of 1.2489, up from lows near 1.2382 at the open. Bigger picture, the pound has recovered most of the net losses seen during May against the dollar and yen. Weakness in May came amid speculation that the BoE is heading for negative rates. The next BoE MPC meeting is on June 17th-18th. We don't expect the central bank 'go negative' at this juncture, based on recent signaling by BoE members. Much will depend on how successful the economic reopenings are without sparking a further lockdown. We see potential for Cable to vault back above 1.3000 should economic reopenings go well and the UK government either makes a deal with the EU or extends its transitory single market membership.

    [USD, CHF]
    EUR-CHF eased back from near four-month highs of 1.0733 seen on Friday, though settled over the 1.07 mark, as risk-on remained in place. The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB.

    [USD, CAD]
    USD-CAD traded to near three-month lows of 1.3673 overnight, falling from early Asian highs just over 1.3800. The sell-off came as WTI crude prices firmed up. Later, reports that China will halt imports of some U.S. agriculture products, including soybeans, flipped market sentiment, likely ratcheting up U.S./China tensions further, which weighed on the CAD in the process. USD-CAD later rallied over 1.3739, though with oil prices headed higher, risk appetite improved, and the USD remaining heavy overall, USD-CAD fell to trend lows of 1.3582.

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