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By XE Market Analysis October 15, 2020 2:42 pm
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    XE Market Analysis: Asia - Oct 15, 2020

    The Dollar firmed up overnight and retained a bid tone Through the N.Y. session on Thursday. Risk-off conditions prevailed, resulting in safe-haven USD buying. Surging Covid cases in many parts of the globe, along with fading hopes for new stimulus and uncertainty over the U.S. November election saw equities drop around the world. Wall Street opened sharply lower, though managed to pare losses later in the session. Treasury yields were lower to start the day, though ended nearly unchanged as stocks recovered some. Incoming data was mixed, with initial jobless claims moving higher, though continuing claims dropped sharply. Import prices were in line, while the Philly Fed index beat expectations, and the Empire State index missed the mark. Taken as a whole, the data had little market impact. EUR-USD headed from London highs of 1.1758 to a low of 1.1688, while USD-JPY was range bound, moving from early 105.18 lows to 105.44 in afternoon trade. USD-CAD rallied from opening lows near 1.3200 to 1.3259 highs, later touching 1.3220 as oil prices recovered. GBP-USD had fallen from 1.3025 to 1.2890 in early N.Y., later settling near 1.2920.

    [EUR, USD]
    EUR-USD tumbled from 1.1758 overnight to better than two-week low of 1.1688 in early N.Y. The move was driven by Dollar strength, as safe-haven buying stepped in as global equities turned sharply lower. In addition, the Euro has likely felt some pressure from the run-away increase in Covid cases, and increased restrictions throughout much of Europe. With odds rapidly decreasing for further U.S. fiscal stimulus, and uncertainty over the U.S. election, we suspect risk taking levels will remain suppressed, which would keep the USD supported, leaving further downside room for EUR-USD.

    [USD, JPY]
    USD-JPY was range bound through the N.Y. session, bottoming at 105.18 early, later bouncing over 105.40 after the London close. Yen crosses headed lower, as risk-off saw demand pick up for the haven JPY. USD-JPY however, was mired, as the Dollar retained its status as a safe-haven currency as well. Both the Yen and the USD tend to move in the same direction during bouts of risk-off, which contained USD-JPY movements.

    [GBP, USD]
    Cable slid from 1.3025 highs in London, later bottoming at 1.2890 in early N.Y. Boris Johnson gave the EU 24 hours to back down on its demands for unchanged fishing rights in British waters. This appears to have been a response to signs that the EU called Johnson's bluff, with The Independent reporting that a new draft communique from EU leaders had dropped a pledge to "intensify" negotiations with the UK after the summit, signaling that they are readying for a no deal. Border chaos, and an overall plunge in terms of trade, including a big hit to the UK's service sector, alongside the existential threat to the integrity of the UK is why we anticipate a deal, albeit a limited one. Sterling's fate hangs in the balance.

    [USD, CHF]
    The Swiss franc continued to trade with a firming bias on Thursday, rebounding from bouts of weakness in recent months. The cross hit three-month lows under 1.0700, as the Euro generally softened and as CHF buying picked up on the back of a risk-off session. 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 was on the move, rallying to six-session highs of 1.3248, up from overnight lows of 1.3146. Risk-off conditions, along with as much as sa 4% drop in oil prices, and a generally firmer USD have been the drivers. Global equities remain in the tank, while WTI crude trade as much a $2/bbl lower toward the $39 level earlier. In addition, the CAD may be feeling some pressure from the Covid situation in Canada, where NYT data show a 48% increase in cases over the past two-weeks, and a 128% spike in deaths over the same period. The 50-day moving average at 1.3217 reverts to support, after being breached earlier, with resistance now at the October 8 high of 1.3266. Later, as oil prices recovered some, USD-CAD headed back into 1.3220.

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