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By XE Market Analysis September 4, 2019 2:56 pm
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    XE Market Analysis: Asia - Sep 04, 2019

    The Dollar fell in Europe, and moved lower still through the U.S. session on Wednesday, taking the DXY to 98.46 lows from mid-morning highs of 98.68 . Risk-on conditions returned fallowing some calm in Hong Kong, once the government's extradition bill was pulled, and after a better China services PMI. Wall Street rallied, while Treasury yields were little changed into the close. For data, the July trade report came in near expectations, and had little market impact. EUR-USD made its way from opening lows of 1.1007 to 1.1032, while USD-JPY was range bound on either side of 106.25. USD-CAD pulled back sharply following the BoC announcement, bottoming under 1.3230. Cable meanwhile, advanced to four-session highs of 1.2220.

    [EUR, USD]
    EUR-USD reversed losses seen earlier in the week, currently about 100 points above Tuesday's 27-month low of 1.0926. Upwardly revised EU services PMI prompted further short covering, which kicked off yesterday following the sub-50 U.S. ISM outcome. Bigger picture, weak EU fundamentals, an ECB set to ease, and Brexit remain in the mix, likely leading to further Euro losses down the road. Initial resistance is now seen at the 1.1050-60 region.

    [USD, JPY]
    USD-JPY has been in a quiet range since the open, traversing a narrow 106.36 to 106.12 trading band. The pairing has been stuck on either side of 106.00 for over a week. Overnight, a better China services ISM outcome, along with easing tensions in Hong Kong supported the pairing, though with trade uncertainty still in focus, upside has been contained. Dovish comments from a BoJ board member, who said the Bank must "preemptively" ease monetary conditions, also provided USD-JPY support.

    [GBP, USD]
    Cable printed four session highs of 1.2220 into the N.Y. open, marking over a 2% advance on Tuesday's near two-year low at 1.1958. Brexit politics remain front and centre. Opposition and Tory rebel members of parliament will be attempting to pass a bill that will prevent a no-deal Brexit on October 31. The bill stipulates that PM Johnson will have until October 19 to either pass a deal or get Parliament to approve a no-deal Brexit; once this deadline has passed, he will have to request an extension to the UK's departure date, taking it from October 31 to the end of January next year. It's likely too early for a sustained rebound in the pound, though there is good reason to expect one at some point. Even in a no-deal reality, the UK government would be under a lot of pressure to make concessions to the EU.

    [USD, CHF]
    EUR-CHF printed a fresh 26-month low at 1.0813 on Wednesday, extending what has been a five-month bear trend, reflecting in part demand for the Swiss Franc's as a safe haven and in part as markets factor in looser ECB monetary policy. The risk of a disorderly no-deal Brexit on October 31 is also a negative for the Euro. Overall, we retain a bearish view of EUR-CHF.

    [USD, CAD]
    USD-CAD fell under 1.3230 from near 1.3330 following the BoC policy announcement, where rates were left unchanged at 1.75%, as expected. The bank's statement said "Canada’s economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary policy stimulus remains appropriate." The BoC continues to buck the global easing trend, and appears to be on hold policy-wise, for the foreseeable future.

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