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By XE Market Analysis September 16, 2020 3:34 pm
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    XE Market Analysis: Asia - Sep 16, 2020

    The dollar headed a bit lower, then reversed course higher following the FOMC announcement, where policy was unchanged, as expected, though moves were modest. USD-JPY dipped from 104.98 to 104.80, then headed to 105.08 highs, as EUR-USD bounced from 1.1830 to 1.1855 before heading to 1.1805 lows. The FOMC's "dot plot" indicated rates on hold for the foreseeable future, perhaps all the way out to 2023. The Fed's big upgrades to growth forecasts, and lowered unemployment expectations likely gave the USD a modicum of support, though overall, the outcome was about as dovish as the market was expecting, allowing unwinding of positions, and the USD to move higher. Ahead of the announcement, the FX market was largely on hold, with moves subdued. Wall Street padded its early gains after the Fed announcement, though came back to earth on improved Fed forecasts, and letting inflation loose. Yields largely shrugged off the outcome.

    [EUR, USD]
    EUR-USD bounced from a 1.1810 low, trading up over 1.1845 in late morning. The pairing may have received a small boost after the Bundesbank hawk Weidmann said that emergency measures must be scaled back as soon as possible, though more likely, short covering ahead of the London close and the FOMC announcement was the driver. EUR-USD remains in consolidation mode, trading roughly between 1.1750 and 1.1900 for two-weeks now. EUR-USD bounced around inside of a 1.1855 to 1.18005 trading band after the FOMC.

    [USD, JPY]
    USD-JPY remained weak through the session, falling from 105.40 overnight, and bottoming near six-week lows of 104.80 in N.Y.. The pairing's move lower came despite a generally positive risk backdrop, as the usually risk-sensitive Yen moves in the opposite direction as stocks. The Yen has been on the rise since Monday, with some speculation that the market has priced in hopes for an upbeat economic assessment from the BoJ policy announcement tonight. The BoJ is expected to maintain its ultra-easy stance. But a recent Reuters source piece said the Bank will give a brighter view on the economy, though uncertainty, due to the pandemic, will limit recovery potential. The pairing recovered over 105.10 after the Fed, from near 104.85.

    [GBP, USD]
    Cable rallied to 1.3007 peak into the London close. Some of these gains, largely seen ahead of the N.Y. open were due to early US weakness, but the pound also rose against the Euro. There is speculation that the UK government could make compromises and amend the Withdrawal Agreement Bill to make it more acceptable to members of his own party, and which in turn could make it more amenable to the EU. Even though the controversial Internal Market Bill sailed through the House of Commons, the proposed legislation is likely to have a tougher time in the House of Lords. In any case, there are suspicions that the legislation is merely a giant gambit of PM Johnson and his cabinet to up the ante and strengthen their negotiating position into the final weeks of talks. This backdrop has lessened the bearish conviction markets have with regard to the pound. After the Fed, Cable was relatively steady between 1.3000 and 1.2950.

    [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 rallied to North American highs of 1.3188 following the Canadian CPI data, up from early lows of 1.3158. The pairing had been on the decline from overnight highs of 1.3200 seen in Asia, as oil prices rose, and as risk-on sentiment prevailed. WTI crude is at near one-month highs of $39.48, which should limit USD-CAD upside potential for now. WTI crude traded over the $40 mark for the first time in nearly two-weeks, which kept some pressure on the pairing into the Fed, though later it headed over 1.3175 on general USD strength.

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