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By XE Market Analysis March 25, 2020 2:35 pm
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    XE Market Analysis: Asia - Mar 25, 2020

    The DXY firmed in N.Y. morning trade on Wednesday, peaking at 101.87, before easing back to 101.24. The index has posted three consecutive sessions of lower daily highs, which have likely come following stimulus measures including Dollar swap lines from the Fed to G7 countries, which have reduced the demand for USD in the FX market. Wall Street powered higher again, as the U.S. Senate plans to pass the virus stimulus bill on Wednesday. Treasury yields were higher as swell, despite the stock rally. The market ignored the better than expected durable goods report. EUR-USD bottomed at 1.0785 before rallying to 1.0860 after the London close. USD-JPY made its way to 111.68 highs from opening low of 111.06. USD-CAD traded from over 1.4440 to lows under 1.4230. GBP-USD meanwhile, was very volatile, falling from over 1.1970 into the open, then falling to 1.1640, then rallying to 1.1845 into the close.

    [EUR, USD]
    EUR-USD touched intra day lows of 1.0785 in N.Y. morning trade, later popping to 1.0860 highs into the London close on reported short covering, driven by hopes for the passage of the U.S. stimulus bill. FX market volatility has been on the decline this week, as massive global stimulus has ratcheted markets away from panic mode that prevailed last week. EUR-USD today has remained inside of Tuesday's trading band, perhaps indicating the start of some consolidation.

    [USD, JPY]
    USD-JPY remained firm, after dipping briefly under 111.00 during Asian hours. The pairing rallied to 111.53 in London morning trade, and holding the 111 handle through the morning U.S. session, later peaking at 111.68. Risk-on conditions provided support this morning, though today's "inside day" may be hinting at some consolidation going forward. Given the huge monetary and fiscal global stimulus being put into place, including Dollar swap lines opened up by the Fed, USD volatility may ease in the coming sessions. Already this week, intra day USD-JPY trading ranges have narrowed considerably as compared to the massive swings seen the previous 2-weeks, indicating perhaps a period of consolidation.

    [GBP, USD]
    Cable topped at a one-week high of 1.1973 ahead of the open, though was sold off fairly hard during the N.Y. morning session, bottoming at 1.1640. The BoE's Monetary Policy Committee meets Wednesday and Thursday, when it will release the minutes from last week's decision to cut the repo to 0.1% and expand QE. The UK government is implementing an aggressive stimulus package to counter the impact of virus-containing measures, billed as an "employment retention" coronavirus support package, which aims to keep the economy primed for a rebound by paying up to 80% of employees pay in businesses that have been forced to suspend trade.

    [USD, CHF]
    EUR-CHF recovered to over two-week highs of 1.0630 on Wednesday, as stimulus hopes kept risk-on conditions in play for the second straight day. Safe haven demand for the CHF will likely continue on and off amid heightening concerns about the global economic disruptions being caused by efforts to contain the coronavirus. More downside for the pairing would appear to be in the cards. The Swiss central bank kept its policy rates unchanged at -0.75% today following its quarterly policy meeting, as had been widely expected. The SNB acknowledged the impact of virus developments, which also put upward pressure on the franc, and pledged that it will step up forex interventions to keep the currency under control. The SNB said growth will be likely be negative this year, and that it is considering to reduce the counter cyclical capital buffer (the German equivalent of this was cut to zero last week). The exemption threshold for the negative rates will be lifted, and while the SNB stressed that the banking system has sufficient liquidity for now, policymakers also emphasized that it will ensure that this stays like that.

    [USD, CAD]
    USD-CAD rallied over 1.4420 in early North American trade, coming from 1.4297 lows seen during the London morning session. A moderate oil rally took the pairing to its lows, though with WTI crude later falling under $23.20 from over $25.20, USD-CAD headed higher. Oil prices continue to be a main driver of USD-CAD direction. Indeed later, as oil prices reversed higher again, USD-CAD fell back under 1.4230. A different issue likely to weigh on the CAD in the near term also relates to oil. Canada's crude storage capacity is nearly full, with some expecting a near 500k bpd cut to domestic oil production in April.

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