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By XE Market Analysis October 14, 2020 2:10 pm
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    XE Market Analysis: Asia - Oct 14, 2020

    The Dollar headed lower into the open, and through late morning, as modest risk-on conditions prevailed. Wall Street opened with small gains, though ultimately turned fairly sharply lower on myriad concerns, including rising Covid cases, uncertainty over the economic outlook, the U.S. election and mixed earnings reports. The resulted in the USD rallying on the back of safe-haven flows. The DXY headed from London highs of 93.65 to a N.Y. low of 93.25, before recovering to 93.43 highs. Incoming U.S. data saw September PPI print a hotter than expected outcome, but had marginal impact on markets. EUR-USD advanced from near 1.1740 at the open to 1.1771 highs, later fading to 1.1745. USD-JPY headed to near two-week lows of 105.04, down from pre-opening highs over 105.40. USD-CAD ranged between 1.3122 and 1.3145, later rallying to 1.3163 in afternoon dealings. GBP-USD ran up to 1.3065 from 1.2970 at the open, later easing into 1.3010.

    [EUR, USD]
    EUR-USD rallied through the morning session, with the USD coming under some pressure as Wall Street headed higher at the open. The pairing opened near 1.1740, later making its way to 1.1771 highs. Stocks later tumbled lower, which saw the Greenback turn higher, taking EUR-USD back into 1.1745. On the Euro side of the equation, further gains may be hard to come by going forward, as Covid cases surge in Europe. The WHO reported a record 700,000 new cases in Europe last week. Concerns that the still fragile European recovery will be halted by virus developments will somewhat put a cap on the Euro.

    [USD, JPY]
    USD-JPY printed near two-week lows of 105.10, down from over 105.35 at the open, and overnight highs of 105.52. The Dollar has reversed most of Tuesday's gains, which came as risk-taking levels faltered. Today's risk backdrop has remained fairly steady, with Wall Street modestly in the green, which, along with slightly softer Treasury yields, has allowed the USD to fade lower. In addition, reports that China has upped it purchases of JGBs has supported the Yen as well. Next USD-JPY support comes at the October low of 104.94, with resistance at Tuesday's 105.63 high.

    [GBP, USD]
    Cable opened at lows of 1.2985, later rallying to 1.3065. A round of USD buying later in the session as stocks fell, saw the pairing pull back to 1.3007 lows. Indications of headway in EU and UK future relationship negotiations supported Sterling. The UK prime minister's office indicated that it is willing to drop its October-15 deadline, and that EU chief negotiator Frost is apparently advising Boris Johnson that talks should continue, and that it will be difficult but not impossible to get an agreement. A spokesman subsequently stated that progress has been made in technical areas, although warning that differences remain. Any news of a deal would likely boost sterling over the near term, but the UK will see its terms of trade position deteriorate.

    [USD, CHF]
    The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. The SNB explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

    [USD, CAD]
    USD-CAD rallied from 1.3111 to 1.3148 highs ahead of the North American open, with the move coinciding with WTI crude's slip under $40 to session lows. Oil prices later headed to four-session highs over $41.00, allowing USD-CAD to pull back to 1.3122 lows. From there, Wall Street's sell-off saw the USD recover overall, taking USD-CAD to intra day highs of 1.3163. New Covid cases in Canada hit an all time high on Tuesday, with more than 4,000 cases reported, nearly double the seven-day moving average. According to NYT data, new cases in Canada are up 51% over the past two-weeks, with deaths up 118% over the same period. New restrictions have been put in place, leaving the economy more vulnerable. As a result, at some point, the CAD could react negatively should Covid cases continue to rise.

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