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By XE Market Analysis November 6, 2020 3:11 pm
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    XE Market Analysis: Asia - Nov 06, 2020

    The DXY fell to its lowest level since September 1 in N.Y. trade on Friday, with the index printing four-straight lower daily lows this week. Pressure earlier came as risk-on conditions prevailed following the election, where most assumed a split Congress would keep taxes from rising and preserve business deregulation which has been seen four nearly four years. Chances are looking better now though, that the Democrats will run the election table, leaving them in control of Congress and the presidency. This would likely result in massive spending, which would need to be financed by Treasury issuance, which would certainly keep pressure on the USD. Friday's October jobs report was better than expected, though was largely ignored. Wall Street was narrowly mixed, while Treasury yields rose. EUR-USD rallied from 1.1851 to 1.1890, while USD-JPY dropped from 103.72 to 103.23. USD-CAD headed from early highs of 1.3084, later bottoming at 1.3020. GBP-USD peaked at 1.3177 from opening lows of 1.3093.

    [EUR, USD]
    EUR-USD printed a two-month high of 1.1891, marking its fourth-consecutive day of gains. The pairing had bottomed at 1.1795 during Asian hours. With prospects for a freer spending Democrat House and Senate and a Democrat president, the Dollar has been hit with the likelihood of further massive deficit funding more stimulus and infrastructure projects, which should keep pressure on the Dollar going forward. EUR-USD's next upside target will be the 1.1900 level, which was the September 15 high.

    [USD, JPY]
    USD-JPY printed fresh near eight-month lows of 103.18 ahead of the N.Y. open, later rising to 103.72 as risk-taking levels deteriorated, which put pressure on Wall Street. The solid jobs report lifted Treasury yields, which was supportive of the pairing as well. From there, the USD ebbed lower to 103.23 lows, as stocks moved back up toward unchanged on the session. The Dollar remains under broad pressure, which has seen the DXY printing four-consecutive lower daily lows this week. Control of the U.S. Senate remains in limbo, and there is potential for a clean sweep by the Democrats, taking the presidency and both houses of Congress. Such an outcome may be good for equities, but not so much for the USD, as any Democrat passed stimulus bill would likely be much larger than it would have been if the GOP retained the Senate. The bigger the package, the more Treasuries will need to be sold to finance it, and the more the Dollar will suffer.

    [GBP, USD]
    Cable rallied from early N.Y. lows of 1.3093 to a two-month high of 1.3177. Broad USD weakness was the major driver of the move higher, though there remains some hope that a U.K./EU trade deal can be done. The final deadline is understood to be the end of next week. Reports say that the principal two sticking points remain fishing rights and state aid rules. But there have been signs of there being a compromise in the case of the former, and a doable walk around in the case of the latter. The pound would likely rally on news of a breakthrough, although not by much unless the deal is broader than the narrow agreement that most anticipate. The central criterion for the pound's future trajectory will be what impact any deal has on the UK's terms of trade. The narrower any trade deal is, the bigger the impact on the UK's trading position will be on January 1.

    [USD, CHF]
    The Swiss franc has been trading with a firming bias, consistently rebounding from bouts of weakness in recent months and driving the EUR-CHF cross to levels under 1.0700 last week for the first time in three months. Markets are anticipating revamped monetary easing measures from the ECB while factoring in Brexit risk. The franc has a proclivity to ascend on the back of its balance of payments position. The SNB stated at its quarterly monetary policy review last month that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market."

    [USD, CAD]
    USD-CAD dipped to 1.3041 from 1.3083 following the twin U.S. and Canada jobs reports, both of which were slightly better than expected. From there, a brief rally to 1.3070 was followed by a dip to a fresh two-month low of 1.3020. The CAD turned higher, despite the 3-plus percent drop in crude oil prices, and appeared to have been driven by general USD weakness. Next USD-CAD support comes at the September 1 low of 1.2994.

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