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By XE Market Analysis November 16, 2020 2:22 pm
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    XE Market Analysis: Asia - Nov 16, 2020

    The Dollar firmed up some in London morning trade, seeing the DXY head from one-week lows of 92.47 to 92.84 in early N.Y. Risk-on conditions through the N.Y. session later weighed some on the greenback, as Wall Street jumped to record highs on the Moderna Covid vaccine news. USD moves overall though, were minimal. For data, the November Empire State index was worse than expected, though had little market impact. While markets cheered the new vaccine, it will still be months before it will be effectively distributed, and the surges in Covid cases in Europe and the U.S. will continue to result in tentative expectations for economic recovery, and on-again, off-again bouts of risk-on and risk-off conditions. For now, we may continue to see a lot of USD market churn inside of relatively narrow ranges, though longer term, with the Fed's lower for longer policy stance, the USD may come under pressure in the coming months, as growth returns with inflation, while the Fed remains near ZIRP on the policy front.

    [EUR, USD]
    EUR-USD topped at one-week highs of 1.1869 in London trade, later opening in N.Y. near 1.1845, before bottoming at 1.1814. Early fading of vaccine driven equity gains supported the USD briefly, though as the Dow later printed record intraday highs, EUR-USD made its way back to 1.1845 into the London close. The hurt remains out in the near-term on EUR-USD direction, with moves for the most part continuing to be driven by risk-taking levels. Bigger picture, this dynamic may change as vaccine distribution gets underway over the next few months. Monday's market narrative called for a lower USD in the new year, as the Fed remains in uber-easing mode, and as U.S. equity valuations remain high relative to the rest of the world.

    [USD, JPY]
    USD-JPY spiked up from near 104.60 to 105.14 ahead of the N.Y. open. The move higher came after Moderna announced its Covid vaccine, which apparently could be a game-changer for the pandemic in the coming months. The risk-sensitive Yen took a dive as global equity markets surged. USD-JPY gains were pared in early N.Y., as stock futures came off their highs, and as the markets again came to the realization that a rollout of vaccine is still months away, and new cases continue to soar in the U.S. and Europe. USD-JPY later pulled back to N.Y. session lows of 104. 52.

    [GBP, USD]
    Cable fell from 1.3243 to 1.3166 in London, though the N.Y. session was relatively uneventful from there, with GBP-USD managing just a 1.3167 to a 1.3204 trading band. Brexit remains front and center. The coming week was being touted as the 'final final' deadline for a future relationship deal to be reached to allow time for the ratification process ahead of the UK's departure from the common market and customs union on January 1, but it has become clear that negotiations could be pushed further out still. France's EU minister said on Friday that a "fixed, scientific deadline" has never been set, but if this happens after the end of November "we will be in trouble." There has still not been a breakthrough in negotiations between the EU and UK. Evidently, given the pound's performance, the prevailing market expectation remains that there will be a last-minute climbdown and the two sides will strike a deal, which is what we anticipate.

    [USD, CHF]
    EUR-CHF rallied to seven-week highs of 1.0828 in N.Y. on Monday, on the back of the Moderna vaccine news, which saw risk-taking levels surge, putting downward pressure on the haven CHF. The cross later eased back into the 1.0800 mark. EUR-CHF has struggled to hold the 1.0800 level since the summer, and will likely remain altitude limited going forward unless the risk-backdrop holds up. The pairing headed back over 1.0800 on Friday, as stocks rallied. In addition, the cross will remain under pressure should the ECB embark on further easing in December.

    [USD, CAD]
    USD-CAD fell from overnight highs of 1.3124 to 1.3066 at the North American open. The CAD strengthened as oil prices rallied over the $42.00 mark, and up over 4% from Friday's close on the Moderna vaccine news. In addition, talk continues to circulate that OPEC+ may extend its production cuts beyond the start of the new year. Canadian manufacturing data showed broad improvement in September, though had little FX impact. USD-CAD has since edged up over 1.3090, as equity futures shed some early gains, and as the USD more broadly makes some upside headway. Resistance is now at the overnight highs, with support at Thursday's 1.3056 low.

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