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By XE Market Analysis April 3, 2020 7:16 am
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    XE Market Analysis: North America - Apr 03, 2020

    The dollar has outperformed so far today amid a backdrop of souring risk appetite in global markets, with bellwether European stock indices and S&P 500 futures showing losses of about 1%. Oil prices have been choppy following yesterday's massive 24% rally, but have remained below yesterday's highs. Doubts remain about the reported Russia-Saudi deal to end the price war; a Kremlin spokesman wouldn't confirm if Russia would be attending an OPEC+ meeting scheduled for Monday. The narrow trade-weighted dollar index (DXY) gained 0.5% in making an eight-day peak at 100.74. EUR-USD concurrently carved out a nine-day low at 1.0787, making this the fifth consecutive day of lower lows while extending the correction from the 17-day high that was seen last Friday at 1.1148. The pair still remains above the low seen during the recent dollar liquidity crunch, at 1.0637, before the Fed and other central banks stepped in to try and satiate the demand for cash dollars. USD-JPY lifted by about 0.5% in pegging a four-day high at 108.56. Yen crosses have been mixed, with EUR-JPY modestly higher while GBP-JPY and AUD-JPY have traded lower. Sterling returned to underperformance, with Cable shedding about 1% in making a low at 1.2262, with the the pound is also showing declines versus the euro, yen and other currencies, while holding near net unchanged versus the Australian dollar, which has also been underperforming. USD-CAD rose by nearly 0.5% in making an intraday high at 1.4225, though has remained well off yesterday's high at 1.4300. Front-month WTI crude prices have settled in choppy trading today below yesterday's peak at $27.39, though are up on yesterday closing level at $25.32, which. Oil prices still remain down by over 60% from January highs. The March U.S. payrolls report is up today, but, because of the BLS survey methodology, is not going to even come close to fully reflecting the disasters that are the coronavirus and the mitigation measures.

    [EUR, USD]
    EUR-USD has carved out a nine-day low at 1.0787, making this the fifth consecutive day of lower lows while extending the correction from the 17-day high that was seen last Friday at 1.1148. The pair still remains above the low seen during the recent dollar liquidity crunch, at 1.0637, before the Fed and other central banks stepped in to try and satiate the demand for cash dollars. The dollar has been back on the march, however, making gains against the euro even despite a continued narrowing in U.S. yields relative to Bund yields this week. The narrow trade-weighted dollar index (DXY) gained 0.5% in making an eight-day peak at 100.74, which comes with both the pan-Europe STOXX 600 equity index and S&P 500 futures racking up losses of around 1%.

    [USD, JPY]
    USD-JPY lifted by about 0.5% in pegging a four-day high at 108.56. Yen crosses have been mixed, with EUR-JPY modestly higher while GBP-JPY and AUD-JPY have traded lower against a backdrop of global stock markets undergoing a sputtering price action. Global markets are now lacking a sense of direction, though caution prevails with many key global economies remaining in lockdowns of still unknown duration. We continue to anticipate USD-JPY trading at sub-100.00 levels on the assumption that there will be more Japanese repatriation and more safe-haven demand for the yen in the weeks and months ahead.

    [GBP, USD]
    Sterling has returned to underperformance amid a souring in sentiment in global markets. That the final March composite PMI figure was revised down to a series-record of 34 was hardly surprising, and was offset by downward revision to Eurozone data. Cable has shed 1% in making a low at 1.2262, which in large part reflects broader dollar strength, though the pound is showing concurrent declines versus the euro, yen and other currencies, while holding near net unchanged versus the Australian dollar, which is also underperforming. This fits that pattern that's been seen since March 10th, when the dollar liquidity crunch kicked off, exposing the UK with its outsized financial sector and dependence on foreign investment to finance is current account deficit, though the actions of the Fed and other central banks to satiate the demand for cash has been given the pound a reprieve. Unresolved Brexit issues remain a concern, too, though markets have been starting to bet that the UK will ask the EU for an extension of its post-Brexit transition membership of the Union's customs union and single market. Neither the UK nor EU has the resources to conduct detailed trade negotiations under the the prevailing circumstance of the coronavirus crisis. This is seen as potentially sterling positive as it will avoid the possibility of the UK leaving the transition period and shifting a big chunk of its trade onto less favourable WTO trade terms.

    [USD, CHF]
    EUR-CHF has continued to gravitate around the 1.0600 level, holding above the five-year low that was seen on March 9th at 1.0505. Assuming the coronavirus crisis persists, as looks highly likely, this should maintain Swiss franc's safe haven premium, which at the least should limit upside scope of EUR-CHF. The U.S. in January added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD rose by nearly 0.5% in making an intraday high at 1.4225, though has remained well off yesterday's high at 1.4300. Oil prices rallied by a massive 24% yesterday, partly on news that Russia and the Saudis had reached a deal on restricting crude supply, although a lack of specifics has fostered doubts in the crude market and seen prices drop from highs. Front-month WTI crude prices have settled in choppy trading today below yesterday's peak at $27.39, though are up on yesterday closing level at $25.32, which. Oil prices still remain down by over 60% from January highs. Given that demand will remain weak for a likely historically protracted amount of time, which will make it difficult for oil producers to offset, we anticipate that the Canadian dollar will remain apt to underperformance. USD-CAD revisiting its recent 17-year high at 1.4669 seems likely before long.

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