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By XE Market Analysis March 5, 2020 3:07 pm
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    XE Market Analysis: Asia - Mar 05, 2020

    The Dollar index traded to fresh two-month lows in N.Y. on Thursday, with losses coming on the back of the pricing in of further Fed rate cuts, and Treasury yields diving to new all-time lows. Wall Street gave back Wednesday's sharp gains, as coronavirus fears remained firmly entrenched. Incoming data included an in-line jobless claims outcome, downwardly revised productivity, and softer factory orders. The data had little impact on markets. EUR-USD rose to two-month highs over 1.1210, up from under 1.1170. USD-JPY headed into the 106.20 level from opening highs just under 107.00. USD-CAD topped near 1.3440, rising on dovish leaning words from BoC governor Poloz. GBP-USD moved to one-week highs near 1.2950.

    [EUR, USD]
    EUR-USD rallied to new two-month highs of 1.1218 after the London close, up from 1.1167 lows at mid-morning. Dollar losses have come amid sliding Treasury yields and the pricing in of further Fed rate cuts. Rates at the long end of the curve are on record lows. Bigger picture, the the dollar's rate spread advantage has remained under pressure for a few weeks now, with Tuesday's 50 basis point Fed rate cut obviously impacting greatly on that front. The ECB has little scope to ease further going forward, which will likely keep EUR-USD in buy the dip mode for now. Offsetting to a degree, will be the generally better performing U.S. economy relative to Europe. The next upside target is the December 31 high of 1.1239.

    [USD, JPY]
    USD-JPY printed six-month lows of 106.22 after the London close, as another major risk-off session unfolded. Wall Street was down nearly 3% at mid-session, while Treasury yields headed to fresh all-time lows, both combining to weigh heavily on the pairing. Another 25 bps of Fed easing is priced in for the FOMC announcement on March 18, which will limit the Dollar's upside potential. Risk levels will continue to drive USD-JPY direction, and given the uncertainty of the coronavirus, bouts of safe-haven Yen buying are likely to continue.

    [GBP, USD]
    Cable rallied to a six-day high at 1.2947 into the London close. This comes amid a re-pricing in BoE rate cut expectations, with positioning in the sterling OIS market implying about a 50/50 chance for the central bank to deliver a 25 bp rate cut at its March 26th Monetary Policy Committee meeting. On Wednesday, the market had been discounting a 65% probability for such a move. Incoming BoE Governor, Andrew Bailey, who will take over from Carney on March 16th, said during parliamentary testimony yesterday that, with regard to the coronavirus, "what we need is frankly more evidence than we have at the moment as to exactly how this is feeding through." Bailey was careful not to rule out any policy response, even an in-between meeting emergency move, but clearly his message was measured.

    [USD, CHF]
    EUR-CHF eased under 1.0620 on Thursday, 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 eased to 1.3390 lows in late morning trade, down from four-session highs of 1.3432 seen after the North American open. Profit taking from the new highs of the week were likely behind the modest downturn, though with risk-off conditions prevailing again, and oil prices remaining relatively heavy, further losses are expected to be limited. USD-CAD resistance remains at the February 28 nine-month high of 1.3464. USD-CAD later rallied to 1.3438 highs from near 1.3400 following remarks from BoC governor Poloz. He said the global economy would be "significantly disrupted" by the coronavirus epidemic, which necessitated the deep 50 basis point rate cut seen on Wednesday. Poloz said stabilization of the economy was the driving factor. The rate cut will open the door to a housing bubble in Canada, and put upward pressure on already high consumer debt.

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