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By XE Market Analysis October 21, 2020 2:49 pm
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    XE Market Analysis: Asia - Oct 21, 2020

    The Dollar was choppy in N.Y. trade on Wednesday, though ultimately ended lower overall. The DXY printed a seven-week low of 92.47, down from early highs of 92.83. The USD tended to move in the opposite direction to the risk-backdrop, which shifted through the session on the back of stimulus concerns, the election and Covid. Wall Street spent the day traversing between modest gains to modest losses. Treasury yields were slightly higher. There was no incoming data of note. EUR-USD rallied from opening lows of 1.1841 to 1.1881. USD-JPY broke lower, selling off to 104.34 from early highs over 104.90. USD-CASD faded early, dropping to 1.3102, then later recovering to 1.3140. GBP-USD printed a six-week high of 1.3177, up from early lows of 1.3102. Thursday's U.S. data will have weekly jobless claims, leading indicators and existing home sales.

    [EUR, USD]
    EUR-USD topped at 1.1881, levels last seen on September 16. The pairing has since eased back to 1.1865 lows, as traders took the pullback on Wall Street as a reason to cover USD shorts. The Dollar has slightly turned the corner against its other major peers as well, a sign that risk-off conditions are providing some support to the Greenback. Volatility will likely continue until there is concrete news on the stimulus negotiations. In the meantime, USD direction will largely continue to be determined by Wall Street.

    [USD, JPY]
    USD-JPY has broken out of the narrow trading range seen over the past week or so, trading to 104.34 lows from the 105.52 high seen after the N.Y. close on Tuesday. Selling picked up on the break under 105.00, which had not been breached since October 2, and then only briefly. Broad Dollar weakness was a driver, as the DXY fell to its lowest since early September, toughing 92.58 from near 93.10 after Tuesday's close. Hopes for new U.S. stimulus have weighed on the USD as well, raising inflation expectations. Higher prices generally indicate higher interest rates are on the way, but with the Fed not raising rates anytime soon, the USD could continue to suffer.

    [GBP, USD]
    Cable hit a six-week peak of 1.3177 after the London close. A Bloomberg article, citing unnamed sources, said that trade talks between the EU and UK will be resuming with the aim of striking a deal by the end of the month. Barnier and Frost are also spoke on Wednesday. U.S. Trade Representative Robert Lighthizer also said that that a trade agreement with the UK would come "reasonably soon." Also in the mix was Johnson stating that there will not be another national Covid lockdown, which may have cheered sterling bulls further. Despite the strongly bullish prevailing bias, we remain bearish on the pound over the medium to longer term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal will see trading friction and costs rise.

    [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 1.3102 from 1.3128 following the warmer Canada September CPI. Downside was limited as Canada August retail sales came in on the light side of expectations. The pairing had hit six-week lows of 1.3081 overnight, as oil prices remained relatively firm, and as the USD came under general pressure. WTI crude later stumbled, dipping under the key $40 mark, allowing USD-CAD to rally back to 1.3040 highs. The next downside target is the September 7 low of 1.3049.

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