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By XE Market Analysis October 22, 2020 1:51 pm
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    XE Market Analysis: Asia - Oct 22, 2020

    After falling for three-straight sessions, the Dollar perked up a bit on Thursday, aided largely by solid data, USD short covering and a wobbly risk backdrop. Weekly jobless claims were better than expected for both initial and continuing claims, while existing home sales were through the roof to levels last seen in 2006. Wall Street was again choppy, moving between gains and losses through the morning session, much as was the case on Wednesday, though improving in afternoon trade. Focus remained on stimulus, Covid and the upcoming election. Treasury yields were narrowly mixed. EUR-USD topped at 1.1841 into the open, later printing lows of 1.1811. USD-JPY recovered from early lows of 104.56, rallying to 104.88 into the London close. USD-CAD bucked the trend, dropping to 1.3124 from 1.3173 as oil prices rose. GBP-USD dipped to 1.3070 from 1.3122 ahead of the open.

    [EUR, USD]
    EUR-USD touched three-session lows of 1.1811, in early N.Y. trade, down modestly from overnight highs of 1.1867. The wobbly risk backdrop, coupled with USD short covering interest has kept the Greenback largely perkier on Thursday. The DXY had fallen three days in a row since last Friday, taking the DXY from 93.88 highs to 92.47 lows on Wednesday. The Euro may have seen its best levels for now, as the spike in Covid cases around the EU may prompt further ECB easing measures sooner than many expected. Increasing restrictions and lockdowns put Europe's economic recovery in jeopardy, and could force the Bank's hand.

    [USD, JPY]
    USD-JPY recovered from earlier lows of 104.56, and overnight lows of 104.47, trading to 104.88 following the huge gains in U.S. existing home sales. The mildly risk-off backdrop has given the USD some support as well this morning, though unless Wall Street melts down again, gains are likely to be muted going forward. Election jitters, Covid spikes, and low odds of stimulus before the election should keep risk taking levels pressured.

    [GBP, USD]
    Cable faded from London highs near 1.3150 to a N.Y. low of 1.3070. USD strength was the main driver. For Brexit, markets are anticipating a limited trade deal between the EU and UK. Face-to-face talks between the two resumed today for the first time since last week after a stand-off between Boris Johnson and the EU. EU negotiator Barnier was earlier in the week reported by the BBC to have been "frustrated" with leaders of coastal EU nations for not (yet) allowing him to proceed on tackling inevitable compromises on fishing rights. Perhaps he arrived in London today with authorization to open up this front. With a limited trade deal, and even taking into consideration the UK's progress in signing continuity agreements with non-EU trading partners, the UK economy and the pound would look vulnerable over the medium term.

    [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 rallied from 1.3139 lows seen after Wednesday's close, later topping at 1.3177 during Asian hours. From there, the pairing eased to 1.3140 before hitting a North American high of 1.3173. The latest move higher has come on a modestly firmer USD, though WTI crude prices are on session highs over $40.40, which has so far limited USD-CAD gains. Indeed, later in the session WTI briefly crossed the $41.00 mark, taking USD-CAD to 1.3124 lows. The 1.3200 level marks resistance now, with the 50-day moving average at 1.3202, while support comes at Wednesday's low of 1.3081.

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