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By XE Market Analysis March 3, 2020 2:34 pm
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    XE Market Analysis: Asia - Mar 03, 2020

    The Dollar index fell to two-month lows of 97.00 from 97.67 at the open. The (semi) surprise 50 basis point emergency Fed rate cut was behind the move. This was the first intermeeting move, and the largest, in over a decade. The new target is 1.0% to 1.25%. The Fed reiterated the COVID-19 virus is poses an evolving risk. Wall Street was all over the map following the rate action, though settled in solidly underwater in afternoon trade. The long end of the Treasury curve fell to record lows, taking the 10-year yield under 1.00%, while the short end continues to price in more Fed easing. We expect the Dollar to make its way lower in the coming weeks. EUR-USD rallied to two-month highs of 1.1212, up from early lows under 1.1000. USD-JPY bottomed at near five-month lows under 10710, on weaker equities and yields. USD-CAD initially fell on the rate cut, rallied back over 1.3380 ahead of Wednesday's BoC meeting, where now a 50 basis point cut is expected there. Cable opened near 1.2770, then rallied over 1.2840, later settling in near 1.2800. 25.

    [EUR, USD]
    EUR-USD spiked up to two-month highs of 1.1212 from 1.1123 after the Fed rate cut. The pairing had opened the N.Y. session at lows of 1.1096. Since then, the Euro traded back into 1.1145. With Treasury yields pricing in further Fed rate cuts, and the ECB unable to do much on the easing front going forward, we look to buy the dips for EUR-USD. The next major upside target is the December 31, 2019 high of 1.1241.

    [USD, JPY]
    USD-JPY fell to intra day lows of 107.61 into the open, down from over 108.00, after the G7 punted on any action over the coronavirus crisis. The pairing rallied back to 107.96 highs, as equity markets in the U.S. and Europe maintained gains, after dipping briefly following the G7 statement. The pairing later dove to 107.10 lows following the Fed rate cut, staying down into the close as Wall Street traded sharply in the red, and as longer dated Treasury yields fell to record lows.

    [GBP, USD]
    Cable lifted to levels around 1.2800 in early N.Y. trade, with the pair consolidating at moderately firmer levels after printing a five-month low on Friday at 1.2726. The pairing ramped up toward 1.2845 following the Fed's 50 basis point rate cut, later falling back to near 1.2800. Trade negotiations between the U.K. and EU are underway, and with prospects looking dim currently for a deal by the end of the year, Sterling will likely continue to be sold into strength.

    [USD, CHF]
    EUR-CHF printed near one-month highs of 1.0711 on Tuesday, after falling to 4 1/2 year lows of 1.0584 last Friday, with the safe-haven franc pulling back some as EUR-USD showed strength after the 50 basis point Fed rate cut. It is likely today's price action was just a pause in EUR-CHF declines, with much uncertainty remaining over the coronavirus outbreak. Switzerland reported its first case of the disease last week. The Swiss franc can be expected to rise further in the coming days, should the virus continue to spread.

    [USD, CAD]
    USD-CAD headed up to intra day highs of 1.3380, after bottoming at 1.3346 in early North American trade. Since then the semi-surprise Fed rate cut saw the pairing slide briefly under 1.3320, though has since recovered over 1.3380. The Fed's move will likely force the BoC's hand when it announces its policy statement tomorrow, and we now expect the Bank to cut rates by 50 basis points. This should continue to weigh on the CAD, as markets had the Fed cut priced in, as opposed to the BoC, where until today, expectations had been about 50-50 for a 25 bp cut on Wednesday. In addition, risk-off has returned, and oil prices are again under pressure, likely to support USD-CAD.

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