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By XE Market Analysis September 1, 2020 2:16 pm
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    XE Market Analysis: Asia - Sep 01, 2020

    The DXY hit new 28-month lows of 91.75 during the overnight session, opening in N.Y. 91.85. The Dollar then rose modestly on short covering interest, then advanced to session highs following the better then expected August manufacturing ISM. The Dollar index hit a top of 92.38 following the data. Incoming U.S. data has remained largely positive, and should it continue, the USD's steep slide seen over the past month's could begin to abate. Wall Street rose again on Tuesday, leaving the NASDAQ and AS&P 500 at record levels. Treasury yields were firmer early on, though a round of Fed bond purchases knocked them back down later in the session. EUR-USD topped at trend highs of 1.2011, later falling back toward 1.1905. USD-JPY printed early lows of 105.78, topping later at 106.15 after the data. USD-CAD rallied from trend lows of 1.2994, popping to 1.3078 highs at mid-morning. GBP-USD hit a 2020 high of 1.3483, before heading under 1.3375.

    [EUR, USD]
    EUR-USD topped at 1.1997 into the N.Y. open, up from London lows of 1.1936, but was unable to pierce the psychological 1.2000 level overnight. The pairing later managed to pop to 1.2011, a 28-month high, before immediately falling back into 1.1980. Buy-stops were tripped on the way up, though profit taking backed sellers quickly stepped in. The pairing dropped toward 1.1905 lows following the better U.S. data, and after the London close. We likely haven't seen Euro highs however, as USD sentiment remains soured following the Fed's policy shift on inflation, which will likely result in near zero U.S. interest rates for years.

    [USD, JPY]
    USD-JPY headed from 105.71 lows ahead of the open, topping at 106.15 in the aftermath of the better U.S. manufacturing ISM. The Dollar rallied broadly after the data, which likely improved overall USD sentiment. As for USD-JPY, risk-on conditions provided support as well, as both the S&P 500 and NASDAQ hold at all-time highs. A close over the 20-day moving average currently at 106.06 will aid the technical outlook, and will put the 50-day moving average at 106.49 into view.

    [GBP, USD]
    Cable hit a 2020 peak of 1.3483, later easing back under 1.3390 after the London close. USD strength was a factor in the decline following a strong U.S. Manufacturing ISM print. A move above December's 1.3516 peak would put the pair in 28-month high terrain. There is pressure on the U.K. government to extend its furlough scheme, as without an extension, the UK's recovery, which mostly exceeded expectations over July and August, is likely to slow in the months ahead, which in turn would likely rekindle speculation of the BoE taking interest rates negative.

    [USD, CHF]
    EUR-CHF headed to near three-month highs of 1.0877 in N.Y. The move higher came as EUR-USD vaulted to 28-month highs over 1.2000, with rumors making the rounds that the SNB may have taken advantage of the stronger Euro to sell CHF. The influence of the SNB's intervening hand may have been at play this week, too. Total Swiss sight deposits of francs have risen by 130 bln since the pandemic and consequential lockdowns took a grip on global markets back in March. Sight deposits can be viewed as a proxy marker of SNB intervention to sell francs in forex markets (after buying foreign currencies), which results in the crediting of newly created francs at commercial banks sight accounts.

    [USD, CAD]
    USD-CAD rallied from seven-plus month lows of 1.2994 seen into the North American open. The pairing reportedly found good domestic demand early in the session, resulting in a bounce to 1.3056 ahead of the better US. ISM data. From there, USD-CAD topped at 1.3078 before fading under 1.3050. USD-CAD short covering was the likely driver of the decent rally. WTI crude prices are back over the $43/bbl mark, which should limit USD-CAD upside for the time being.

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