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By XE Market Analysis June 8, 2020 4:40 am
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    XE Market Analysis: Europe - Jun 08, 2020

    The dollar majors have remained in narrow ranges so far today, despite rallying Asia-Pacific stock markets, which have been reacting to Friday's unexpectedly encouraging U.S. May employment report, which added fuel to the view that the global economic rebound from the pandemic nadir in April will be solid. A key question now, especially with many asset prices trading at pre-pandemic levels, is how sustainable social and economic reopening will be; how able will societies be able to keep the coronavirus under sufficient check until such time there is a vaccine or effected treatment. Already the R-rate of infection in a number of states in the U.S., and a number of spots across Europe and elsewhere, is above 1, meaning that new infections of the coronavirus are rising, again, at an exponential rate. The narrow trade-weighted USD index is near net unchanged, just under the 97.0 level, holding above the three-month low that was seen on Friday at 96.44. Recent declines in the dollar, and yen, have reflected a rotation of speculative and investment capital out of safety and into higher-risk assets and currencies. EUR-USD has settled near 1.1300, below Friday's three-month high at 1.1385, which was the culmination of a two-week rally from levels near 1.0900. USD-JPY has settled near 109.50, below the 10-week high seen on Friday at 109.86. The pound has also been trading without direction so far today, after finding a fully of bids on Friday on news that the current round of UK-EU trade talks will be continuing this week. Sterling today saw its highest opening against the euro since mid May. The UK has until July 1st to decide on extending the negotiating period, which in reality means before the European Council summit on June 19th.

    [EUR, USD]
    EUR-USD has settled near 1.1300, below Friday's three-month high at 1.1385, which was the culmination of a two-week rally from levels near 1.0900. The rally reflected part broad dollar weakness, but also part euro outperformance, which was aided by extra fiscal stimulus being announced in Germany and by traction with the massive EU recovery fund. Recent gains have returned the pair to levels that were prevailing well ahead of the pandemic crash in March. The focus is now on economic reopenings on both sides of the Atlantic, and globally. There are risks ahead, which have the potential to return the dollar's role as a safe haven. One is the simple fact that economies aren't likely to fully recover under virus-containing social distancing rules and with the threat of there being renewed lockdowns, which means that asset markets, many of which are trading back at levels seen before the pandemic took a grip, could now be ripe for setbacks. Also, there is a risk that bankruptcies will soar once government business and pay support schemes fall away. Then there is the issue of deteriorating U.S.-China tensions.

    [USD, JPY]
    USD-JPY has settled near 109.50, below the 10-week high seen on Friday at 109.86. The yen was unaffected by rallying Asia-Pacific stock markets today, which have been reacting to Friday's unexpectedly encouraging U.S. May employment report, which added fuel to the view that the global economic rebound from the pandemic nadir in April will be solid. A key question now, especially with many asset prices trading at pre-pandemic levels, is how sustainable social and economic reopening will be; how able will societies be able to keep the coronavirus under sufficient check until such time there is a vaccine or effected treatment. Already the R-rate of infection in a number of states in the U.S., and a number of spots across Europe and elsewhere, is above 1, meaning that new infections of the coronavirus are rising, again, at an exponential rate. Markets could be heading for a number of sizeable bumps in the road, which could foster safe haven demand for the Japanese currency.

    [GBP, USD]
    The pound has been trading without direction so far today, after finding a fully of bids on Friday on news that the current round of UK-EU trade talks will be continuing this week. Sterling today saw its highest opening against the euro since mid May. The UK has until July 1st to decide on extending the negotiating period, which in reality means before the European Council summit on June 19th.

    [USD, CHF]
    Recent euro gains have been a boon to EUR-CHF, which is now trading at its best levels of the year, above 1.0850. The SNB had been defending an informal line-in-the-sand at 1.0500 since early March in an effort to limited franc appreciation and, thereby, disinflationary forces on the Swiss economy.

    [USD, CAD]
    The Canadian dollar and other commodity- and oil-correlating currencies have remained underpinned amid the prevailing appetite for risk that has been coursing through global markets. Front-month WTI crude prices printed a fresh three-month peak at $40.44 today, which follows the formal agreement of the OPEC+ group to extend prevailing quotas for an extra month. Bigger picture, as long as the nascent recovery isn't scuttled by a second wave of coronavirus infections, oil price risk going forward would appear to be to the upside, which in turn should keep the Canadian dollar underpinned.

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