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By XE Market Analysis September 15, 2020 2:33 pm
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    XE Market Analysis: Asia - Sep 15, 2020

    The Dollar headed mostly higher through the N.Y. morning session on Tuesday, after fading through the overnight session. Decent U.S. data helped sentiment, as the Empire State index rose more than expected. The 0.4% industrial production gain was smaller than expected, but it followed big upward revisions that left August levels that were just modestly short of assumptions. Wall Street rallied, lifted by tech stocks, stronger China data, and vaccine hopes while Treasury yields were slightly higher. EUR-USD opened near the 1.9000 high, later falling to 1.1840. USD-JPY bottomed at 105.30, before bouncing to 105.54 highs. USD-CAD printed a 1.3202 top, up from 1.3143 into the open. GBP-USD fell from 1.2925 to under 1.2845, though managed to rebound over 1.2900 after the London close. The FOMC will release its policy statement and new Summary of Economic Projections (SEP) at 14 ET on Wednesday. Chair Powell will hold his press conference from 14:30 ET. He preempted any drama on policy with his Jackson Hole announcement of the new strategies where an average inflation target will be pursued, while any shortfalls in employment will be monitored. The Fed had already indicated that rates would be on hold in the 0% to 0.25% range for a long time into the future, and has reiterated that stance several times, and largely codified it with the shift from the Framework Review. Hence, attention will be on the Fed's revised forecasts. We expect upward revisions to near term GDP and inflation outlooks, where medians pegged 2020 growth at -6.5% and core PCE at 1.0%. We also anticipate a downward bump to unemployment which was seen at 9.3%. Also we expect the dot plot to show no rate hikes through 2023.

    [EUR, USD]
    EUR-USD posted a 1.1900 high into the N.Y. open, though the Dollar later perked up, taking the pairing to 1.1840 lows. EUR-USD sellers are still said to be lined up from the 1.1900 level for the second day, which have effectively capped gains for now. A break above last Thursday's 1.1917 high is expected to bring in a round of buy-stops, though for now, further consolidation appears to be in order. The 20-day moving average is support at 1.1840, with resistance at 1.1900. ECB Executive Board member Panetta added to the wealth of comments suggesting that a stronger EUR will trigger a monetary policy response if and when it endangers the inflation outlook. This likely put some pressure on the Euro as well.

    [USD, JPY]
    USD-JPY printed better than two-week lows of 105.30, down from a 105.81 high seen ahead of the open. The pairing since crept back over 105.50, as general USD strength prevailed since mid-morning. The pair had largely been stuck between its 20-day moving average at 106.03 and its 50-day moving average at 106.29 since last Thursday. USD-JPY has been in a consolidation stage for a couple of weeks now, and the move under 105.79, which was last week's low may mark the start of a more pronounced downturn. Next support is at 105.29, the August 31 bottom.

    [GBP, USD]
    Cable posted a high at 1.2926 into the N.Y open, as the pairing moved firther from the six-week low of 1.2762 seen on Friday. The UK government's controversial Internal Markets Bill was passed in the House of Commons, and will now go the House of Lords. EU-UK and intra-UK tensions are running high due to PM Johnson's gambit to unilaterally amend the EU Withdrawal Agreement. The EU has delivered an ultimatum to reverse the decision, the UK said it won't. A limited trade deal with the EU seems the best that can be hoped for at this stage, which is likely to be thrashed out in October when state leaders, rather than trade envoys, become directly involved. There has, meanwhile, been a surge in coronavirus cases in the UK, like other countries in Europe, which has led the UK government to introduce fresh nationwide social restrictions. Things continue to look fairly dire for the Pound.

    [USD, CHF]
    EUR-CHF has ebbed back to familiar levels in the mid 1.0700s after the latest drop back from forays above the 1.0800 level. The cross has repeatedly failed to sustain gains above 1.0800 over the last couple of months. The influence of the SNB's intervening hand may have been at play during the recent upside bursts.

    [USD, CAD]
    USD-CAD was on session highs of 1.3176 at mid-morning, up from opening lows of 1.3143, and overnight lows of 1.3135. The pairing attracted buyers under the 20-day moving average at 1.3145, though today's risk-on session, along with fairly steady oil prices limited gains. As the USD later perked up, the pairing topped just over 1.3200. Going forward, oil prices will continue to influence USD-CAD direction, though bearish OPEC and IEA demand forecasts look to limit CAD gains going forward. OPEC cut its demand forecasts by 400k bpd for 2020, while the IEA this morning cut by 300k bpd. Both groups cite the resurgence of COVID cases behind the demand forecast cuts.

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