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By XE Market Analysis May 29, 2019 3:12 pm
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    XE Market Analysis: Asia - May 29, 2019

    The Dollar index rallied to one-week highs in N.Y. on Wednesday, as another session of risk-off trade prompted safe-haven flows into the USD. Trade war fears, along with U.S. politics weighed on Wall Street, as China may cut rare-earth exports to the U.S., and as special council Mueller left the door open for a Trump impeachment. EUR-USD fell to 1.1125 lows, while USD-JPY remained heave, though off its lows of 109.20. USD-CAD spiked to 1.3546 following a benign BoC statement, while cable remained near trend lows, bottoming at 1.2611.

    [EUR, USD]
    EUR-USD printed one-week lows of 1.1125, and down for the third straight day. Safe-haven flight into the Dollar has been a driver this week, as risk-off conditions remain in place. Worse than expected German unemployment data, along with dovish ECB commentary on rate guidance also weighed on the Euro. Support now comes at last week's two-year low of 1.1107.

    [USD, JPY]
    USD-JPY headed to highs of the day, topping at 109.56, though just about 35 points higher than N.Y. opening lows. The pairing had touched two-plus week lows of 109.15 in London morning trade, as risk-off conditions prevail for another session. Also supporting the Yen has been the sharp slide in Treasury yields, with the 10-year under 2.23%, down from 2.38% as recently as a week ago. USD-JPY support now comes at 109.02, the May 13 low.

    [GBP, USD]
    Cable fell to 1.2611 lows into the London close, after topping over 1.2670 earlier in the session. General safe-haven Dollar strength weighed on the pairing. The UK currency is likely to remain vulnerable as the success at EU parliamentary elections of the Brexit Party, which favours a hard, no-deal-if-necessary Brexit, strengthens the odds for the Conservative Party to opt for a candidate with strong Brexit-supporting credentials to become the new party leader, and new prime minister. The results of the EU Parliament elections in the UK underscored the sharp polarisation in views about Brexit between the leave-without-a-deal option on the on hand, and remain-in-the-EU on the other. We continue to advise trend following with regard to Cable.

    [USD, CHF]
    EUR-CHF pulled back to four-session lows of 1.1209 in N.Y., as risk-off conditions again prevailed. The punitive -0.75% overnight deposit rate is evidently not sufficient to deter the Swiss currency from still being seen as a safe haven, as trade and geopolitical concerns remain. 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 initially dipped to 1.3495 from 1.3505 following the as-expected, no-change BoC announcement, though quickly spiked up to 1.3546 highs, levels last seen on January 3. The Bank's statement painted a mixed outlook, showing concerns over the ongoing difficult global trade picture, though countered by an upbeat domestic employment environment. Overall, no surprises, and the neutral BoC will remain on policy hold for the visible horizon. The pairing later fell back to 1.3505 as oil prices made a late rally after being sharply lower early in the session.

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