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By XE Market Analysis April 8, 2020 6:52 am
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    XE Market Analysis: North America - Apr 08, 2020

    The dollar rose after declining over the last two days. This comes with global stock markets returning to a sputtering price action following a two-day bounce. News that new coronavirus cases in China have doubled over the last day, and that a city in the north of the country went lockdown, just a day after Wuhan, where the pandemic originated, ended its two-month lockdown, spooked investors. Wuhan will now be a major focus as a test case to see is there will be a second wave of infections. The narrow trade-weighted USD index (DXY) lifted by 0.5% in pegging a high at 100.43, which is about a two-third recovery of Tuesday's decline. EUR-USD concurrently declined by almost 0.5% in making a low at 1.0829. The dollar subsequently pared some of its gains, which floated EUR-USD back above 1.0850. USD-JPY has been directionally challenged, holding with 108.51 and 109.00. AUD-USD fell 0.6% in posting a low at 0.6116 before rebounding to near net unchanged levels above 0.6160. S&P Ratings shifted its rating for Australia to negative as a consequence of the impact of global virus-containing measures on the open Australian economy. USD-CAD climbed about 0.5% in making a high at 1.4082, extending the rebound from yesterday's 12-day low at 1.3943, before ebbing back to the lower 1.4000s. Oil prices have gained over 3% after diving by nearly 10% yesterday amid estimates for a massive rise in U.S. crude inventories in the latest reporting week. Most of the major oil producing countries will be talking on Friday about curtailing supply, although oil analysts have been arguing that it will be difficult to completely offset the extent of the recent unprecedented level of demand destruction.

    [EUR, USD]
    EUR-USD has pared losses after making a low at 1.0829 in early London trading amid a broader lift in the dollar. Global stock markets have returned to a sputtering price action following a two-day bounce. The narrow trade-weighted USD index (DXY) lifted by 0.5% in pegging a high at 100.43, which is about a two-third recovery of Tuesday's decline, though has since settled moderately lower. EU finance ministers are continuing to come up short in finding region-wide fiscal response to the economic impact that virus-containment measures are taking, though markets don't appear to be even trying react to the relative U.S. versus Eurozone news flow with regard to the coronavirus. We expect EUR-USD to remain in a choppy trading pattern, lacking directional bias.

    [USD, JPY]
    USD-JPY lifted out of a two-day low at 108.51, though capped out at 109.00. Most yen crosses have ebbed back today amid a rekindling in the Japanese currency's safe haven premium. This comes with global stock markets returning to a sputtering price action following a two-day bounce. News that new coronavirus cases in China have doubled over the last day, and that a city in the north of the country went lockdown, just a day after Wuhan, where the pandemic originated, ended its two-month lockdown, spooked investors. Wuhan will now be a major focus as a test case to see is there will be a second wave of infections.

    [GBP, USD]
    Cable is moderately softer on the day, even after recouping to around 1.2320 from the intraday low at 1.2298. The incapacitation of Prime Minister Boris Johnson hasn't had a bid impact, with the Foreign Secretary, Dominic Raab, deputising, who is expected to allow for a collegial leadership with the rest of the cabinet and senior advisors and civil servants. Some big decisions will have to be made soon, including how and when to exit from the lockdown. Regarding the coronavirus in the UK, the infection rate of increase is slowing, though the mortality rate is rising. The general view is that the lockdown is working, and evidence of this will become increasing evident over the next two weeks. The exit strategy from the lockdown is becoming debated, as in other countries, though the timing remains uncertain. A phased return to work is likely once the infection rate is in clear retreat, though this would still be contingent on there being a satisfactory supply of relevant medial supplies (protective gear, respirators etc) and testing capacity, which might be one or two months away. The pound, overall, is continuing to trade with relative stability after sharply underperforming in mid March before rebound some of its lost ground. The UK currency remains down by 7% 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.

    [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 climbed about 0.5% in making a high at 1.4082, extending the rebound from yesterday's 12-day low at 1.3943. Oil prices, to which the Canadian dollar has a strong correlation with, are up over 3% today after diving by nearly 10% yesterday amid estimates for a massive rise in U.S. crude inventories in the latest reporting week. Most of the major oil producing countries will be talking on Friday about curtailing supply, although oil analysts have been arguing that it will be difficult to completely offset the extent of the recent unprecedented level of demand destruction.

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