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By XE Market Analysis April 6, 2020 7:19 am
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    XE Market Analysis: North America - Apr 06, 2020

    The yen has underperformed and commodity currencies have rallied strongly out of early weakness as a risk-on theme took hold in markets. Stock markets rallied in Asia and Europe, as did U.S. equity index futures ,on tentative signs in some locked-down countries in Europe that the coronavirus spread is being pushed from an exponential rate towards a linear rate, and with both France and Italy reporting a dip in the mortality rate. Japan's Nikkei 225 and Australia's ASX stock indices finished with 4%-plus gains. Chinese markets were closed for a public holiday in China today. Europe's STOXX 600 was up 2.9%, as of the early PM session, while S&P 500 futures were showing a 2.8% gain. Oil prices were off lows by still showing about a 1% decline. While Russia-Saudi talks on cutting output were delayed, the head of the Russian state wealth fund told CNBC said that a deal was "very, very close." USD-JPY gained over 0.5% in making a 10-day high at 109.38. AUD-JPY and other commodity-currency yen crosses rallied by over 1%. USD-CAD more than retraced Friday's gain in printing a low at 1.4085. Sterling dipped in early trading on news that Prime Minister Johnson had been admitted to hospital 10 days after testing positive to the coronavirus. Cable posted a low at 1.2213 before recovering to levels above 1.2300. EUR-USD has been settled in a narrow range in the lower 1.0800s, above Friday's 12-day low at 1.0773.

    [EUR, USD]
    EUR-USD has been settled in a narrow range in the lower 1.0800s, above Friday's 12-day low at 1.0773. That low was the culmination of a correction from the three-week high that was seen on March 27th at 1.1148. The pair 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]
    The yen has underperformed today as safe-haven premiums unwound. Stock markets rallied in Asia and Europe, as did U.S. equity index futures on tentative signs in some locked-down countries in Europe that the coronavirus spread is being pushed from an exponential rate towards a linear rate, and with both France and Italy reporting a dip in the mortality rate. Japan's Nikkei 225 and Australia's ASX stock indices finished with 4%-plus gains. Chinese markets were closed for a public holiday in China today. Europe's STOXX 600 was up 2.9%, as of the early PM session, while S&P 500 futures were showing a 2.8% gain. Oil prices were off lows by still showing about a 1% decline. While Russia-Saudi talks on cutting output were delayed, the head of the Russian state wealth fund told CNBC said that a deal was "very, very close." USD-JPY gained over 0.5% in making a 10-day high at 109.38. AUD-JPY and other commodity-currency yen crosses rallied by over 1%. 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 dipped in early trading on news that Prime Minister Johnson had been admitted to hospital 10 days after testing positive to the coronavirus. Cable posted a low at 1.2213 before recovering to levels above 1.2300. Friday's low at 1.2206 was left unchallenged. Taking a step back, the UK currency remains down by 7.5% against the dollar on the year-to-date, and down versus most of the other main currencies, although has still gained versus the commodity currencies and other high-beta units over the period. The vast majority of the pound's losses were seen from March 10th through to March 21st, which marked the height of the recent spate of acute risk aversion in global markets that generated an epic liquidity crunch, exposing the UK with its outsized financial sector and dependence on foreign investment to finance is current account deficit. The actions of the Fed and other central banks to satiate the demand for cash has given the pound a reprieve. Markets narratives have also been promoting the view 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. Overall, we expect the pound to remain heavy as the coronavirus crisis persists.

    [USD, CHF]
    EUR-CHF has continued to gravitate around 1.0550-1.0600, 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 more than retraced Friday's gain in printing a low at 1.4085, even though oil prices declined. While Russia-Saudi talks on cutting output were delayed, the head of the Russian state wealth fund told CNBC said that a deal was "very, very close." Oil prices still remain down by over 57% from January highs. Given that demand will remain weak for a likely historically protracted amount of time, which will be difficult for oil producers to offset, we anticipate that the Canadian dollar will remain apt to underperformance.

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