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By XE Market Analysis October 5, 2020 2:28 pm
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    XE Market Analysis: Asia - Oct 05, 2020

    The Dollar was mostly lower in N.Y. trade on Monday, weighed down by the unwinding of long USD safe-haven positions as risk-on conditions returned. Reports that president Trump is doing better after being treated over the weekend for Covid, along with increased hopes that a U.S. fiscal aid package can be passed, combined to buoy Wall Street and weigh on Treasuries. Incoming U.S. data helped stock market sentiment as well, as the September services ISM came in significantly better than expected. EUR-USD rallied to 1.1798 highs from opening lows under 1.1750. USD-JPY bucked the trend, hitting 105.79 high from 105.54 in early trade. USD-CAD fell to 1.3257 lows from early highs of 1.3279, while GBP-USD rallied to 1.2992, up from 1.2935 into the open.

    [EUR, USD]
    EUR-USD printed two-week highs of 1.1798 in mid-morning trade, up from opening levels of near 1.1750, and overnight lows of 1.1706. Aside from USD-JPY, the Dollar has come under pressure through the day as risk-on conditions lessen the unit's safe-haven demand. The backdrop remains uncertain on both sides of the Atlantic, with the U.S. politics in disarray, and now Trump's Covid diagnoses and along with gridlock on fiscal aid sowing uncertainty. In Europe, rising Covid cases, with accompanying restrictions and localized lockdown have put some doubt into an economic recovery there. EUR-USD upside may continue for now, as long as risk taking levels hold up. Psych resistance comes at 1.1800, with the 50-day moving average at 1.1802. Some profit taking can be expected ahead of these levels.

    [USD, JPY]
    USD-JPY was stuck inside a 105.54 to 105.79 range since the open, after opening the Asian session near 105.30. The risk-sensitive Yen has come under pressure given the risk-on backdrop, while elsewhere, the Dollar remains heavy as long safe-haven USD positions come unwound against other major currencies. As a result, USD-JPY has remained inside narrow ranges as the pairing, as both currencies tend to move in the same direction on shifting risk taking levels. The 105.00 to 106.00 trading band can be expected to hold up fro now.

    [GBP, USD]
    Cable traded to better than two-week highs in N.Y., topping at 1.2992, and up from 1.2935 into the open. EU-UK trade talks were extended through to the EU summit, which starts on October 15th. Prime Minister Johnson and European Commission President von de Leyen spoke via video call on Saturday. Both maintained an encouraging tone, though Johnson said that while he wants a deal, he could live without one, while von de Leyen said that significant gaps remain on key issues. The next couple of weeks will be the most intensive phase yet in negotiations -- and decisive with state leaders engaging and given the fast-approaching deadline. Goldman Sachs analysts are calling for a "thin" tariff free, quota free deal, which seems to be the consensus, and we are inclined to agree, with manufacturing likely benefit most but free trade for services likely to be limited.

    [USD, CHF]
    EUR-CHF has ebbed back under 1.0800 again, bottoming at 1.0753 in London, later rallying to 1.0793 in N.Y. on Monday. The SNB remains committed to limiting gains in the franc. At its quarterly monetary policy review last month, it stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market". The cross has repeatedly failed to sustain gains above 1.0800 over the last couple of months, even though influence of the SNB's intervening hand may have been at play during the recent upside bursts.

    [USD, CAD]
    USD-CAD headed to 1.3263 into the North American open, after closing at 1.3307 on Friday. The usual factors supported the CAD this morning, namely higher oil prices, and a firmer risk-taking backdrop. The pairing traded briefly under its 20-day moving average at 1.3268 in morning trade, and later bottomed at 1.2157 opening the door far a test of the 50-day moving average at 1.3243. For that to happen, WTI crude will need to maintain its bid, as will equity markets. T0 the upside, resistance comes at Friday's 1.3331 peak. Looking to Tuesday, twin U.S./Canada August trade reports will be of interest.

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