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By XE Market Analysis May 28, 2019 2:41 pm
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    XE Market Analysis: Asia - May 28, 2019

    The Dollar advanced modestly in N.Y. trade on Tuesday, taking the DXY to four-session highs of 97.96, up from 97.72 lows seen early in the session. A better than expected consumer confidence outcome supported the Greenback some. EUR-USD slipped toward 1.1160, from pre-open highs of 1.1198. USD-JPY made it over 109.61 from two-week lows in London of 109.21, as Wall Street rallied some. USD-CAD peaked at 1.3489, with short covering ahead of Wednesday's BoC meeting noted. Cable was steady over 1.2650. Trade rhetoric and risk taking levels will continue to drive Dollar direction going forward.

    [EUR, USD]
    EUR-USD fell under 1.1165, down from earlier highs near 1.1195. EU politics have perhaps weighed on the Euro, following parliament elections over the weekend, which resulted in gains for the populists and nationalists. EUR-USD is below its 20-day moving average at 1.1188 again, though the pairing remains well inside of recent ranges. Given interest rate differentials and a relatively better U.S. economy, we look for the Euro to continue to be sold into strength.

    [USD, JPY]
    USD-JPY pulled back from post-confidence data highs of 109.61, bottoming so far at 109.45 in reaction to Wall Street paring earlier gains, and lower Treasury yields. The risk-sensitive Yen can be expected to continue to react to equity market direction and trade war news going forward, though with Trump saying over the weekend the U.S. is not ready to make a deal with China, upside potential for USD-JPY may be limited.

    [GBP, USD]
    Cable was fairly stable through the N.Y. session, remaining above the two-day low at 1.2654 seen during the London AM session, peaking at 1.2690. The Brexit Party's success at EU parliamentary elections will strengthen the odds for the Conservative Party to opt for a candidate with strong Brexit-supporting credentials to become the new party leader, and thereby the new prime minister. However, while the Brexit and UKIP parties took 35% of the vote, the anti-Brexit parties collectively took about 40% of the vote. Given this, a new pro-Brexit prime minister would likely do all they can to avoid a new referendum. Cable has support at 1.2600-05, levels which encompassed the near five-month low seen last week. We continue to advise trend following. Resistance comes in at 1.2715-18.

    [USD, CHF]
    The punitive -0.75% overnight deposit rate is evidently not sufficient to deter the Swiss currency from still being seen as a safe haven. The SNB's Alternate Governing Board Member Moser said recently that in his view "if we had higher interest rates then we would have a stronger exchange rate", which something the central bank is ever eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments.

    [USD, CAD]
    USD-CAD peaked at 1.3489 in North American trade, coming from overnight lows of 1.3437. Stabilizing oil prices have limited the pairing's gains so far this week, as WTI remains well above last week's two-plus month lows. Focus will turn to position adjustments ahead of Wednesday's BoC policy announcement. The Bank is expected to remain on hold, after having shifted to a neutral bias at the last meeting. USD-CAD remains inside its recent trading band, with more of the same expected ahead of the BoC.

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