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By XE Market Analysis August 10, 2020 6:46 am
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    XE Market Analysis: North America - Aug 10, 2020

    The dollar has traded moderately firmer, seeing fresh rebound highs in the case against the euro. EUR-USD carved out a six-day low at 1.1753, extending the correction from the 27-month high that was pegged last Thursday at 1.1917. Friday's above-forecast U.S. jobs report lifted the dollar, although weighing on Wall Street on the view that it may reduce the urgency for further stimulus, along with concerns about U.S.-China tensions. Congress remains in a stalemate over the next fiscal package, while President Trump issued executive orders to extend pandemic-era unemployment benefits. U.S.-China tensions remain a focus into scheduled trade talks between the two on August 15th after the President Trump banned Tiktok and WebChat from operating in 45 days if they are not sold by Chinese parent companies, along with sanctioning 11 Chinese and Hong Kong officials. Cable dropped back to around 1.3030-40 after posting a high at 1.3087. At the same time, the perkiness of the pound pressured EUR-GBP to a four-day low at 0.8996. USD-JPY lifted, though has remained a whisker below Friday's peak at 106.07. Tokyo and Singaporean markets were closed today, which made for a ultra thin session in Asia. USD-CAD has been consolidating Friday's gains, posting a sub-30-pip range below Friday's six-day high at 1.3400.

    [EUR, USD]
    EUR-USD has carved out a six-day low at 1.1753, extending the correction from the 27-month high that was pegged last Thursday at 1.1917. Friday's above-forecast U.S. jobs report lifted the dollar, although weighing on Wall Street on the view that it may reduce the urgency for further stimulus, along with concerns about U.S.-China tensions. Congress remains in a stalemate over the next fiscal package, though President Trump issued executive orders to extend pandemic-era unemployment benefits. U.S.-China tensions remain a focus into scheduled trade talks between the two on August 15th after the President Trump banned Tiktok and WebChat from operating in 45 days if they are not sold by Chinese parent companies, along with sanctioning 11 Chinese and Hong Kong officials. We are less bullish of EUR-USD than hitherto, when we were targetting 1.2000, partly on the evidence the U.S. Jul jobs report presented and partly as the coronavirus rate of new infections drop across the sun states, fitting the classic Gompertz curve of annual respiratory illnesses. While the 'feardemic' will persist, as it has across Europe, although with waning force, we can expect with confidence that the U.S. will see its overall Gompertz curve of the coronavirus flatten to near nothing, as it has done in Europe and places such as New York, where herd immunity has built up. The experience in Europe over the last couple of months has been for localized bumps in new infections to show up, which has led to lockdown measures being re-imposed. These bumps, however, have not led to a corresponding rises in hospitalizations or mortalities. Europe's all-cause mortalities, have spike earlier in the year, continue to trend below the long-term average.

    [USD, JPY]
    USD-JPY has so far today continued to ply a narrow range (less than 20 pips, as of the late London morning session) around the 115.50 mark. The Japanese currency is likely to remain apt to directional change on the back of shifting risk premia in global markets. While the BoJ remains committed to uber stimulus, the central bank is no longer unique in this regard (a reflection of this was the 2-year UK yield recently dipping below Japan's 2-year yield for the first time ever), and so has been having little weakening impact on the Japanese currency relative to peers. Backed by a surplus economy, and one where yield-seeking domestic investors are apt to invest in foreign assets during times of confidence, but repatriate funds when times are uncertain, the yen has built up a reputation as a reliable haven currency.

    [GBP, USD]
    Cable posted a fresh two-day low at 1.3086, drawing back from the 1.3187 five-month peak seen Thursday following the BoE's deliverance of a warily-upbeat outlook. The pound has also corrected from the post-BoE highs see against the euro and other currencies. Following a phase of outperformance, we are taking a circumspect view of the pound's upside potential. Both Manchester and Aberdeen are back in lockdown. The city of Leicester, however, has reopened after being locked down for most of the past month. There there has been no follow-through from higher new cases in Leicester to an event-impact of corresponding higher hospital admittances and mortality (note that the test for the coronavirus cannot distinguish between whether the virus is 'live' or is debris from a prior infection of the virus). Regarding the coronavirus, there are two schools of thought: one is that only a tiny fraction of the population has built up an immunity to SARS Cov-2 and, ergo, there is a significant risk of a frightening second wave; the other (which, importantly, recognises that the coronavirus has been in Europe since last October, as sewage samples have proven) is that the virus has already spread through a large part of the population and a communal immunity has been built up (the unfortunate consequence being that vulnerable groups have been badly effected), with the mortality outcome of about 0.05% consistent with a classic Gompertz curve of respiratory illness cycles, albeit a relatively bad one. The Leicester experience adds weigh to the latter school of thought. Either way, the new lockdowns, and ongoing "feardemic" as winter approaches, have potential to erode economic recovery metrics. Brexit also remains unresolved, although off the agenda for now during the summer break. Talks are scheduled to resume on the week of August 17th. The final round of discussions is set for the week commencing October 2nd. Recent sourced articles in the UK press have suggested that there is greater scope for a deal being struck than the official line has suggested, and there is certainly incentive on both sides for a deal to be made, though it would still remain to be seen how extensive a new trade deal would be.

    [USD, CHF]
    The Swiss franc has steadied below lows after showing a noticeable drop on Monday, as it did the Monday prior. The influence of the SNB's intervening hand seems to have been at play. Weekly sight deposit figures out of Switzerland have been suggesting that the central bank has been continuing to sell francs regularly, as it has been since the consequences of the pandemic took a grip on markets, which had the impact of increasing demand for the Swiss currency. A rise in sight deposits (money held by commercial banks) can suggest francs turning up after being sold by the central bank. Last Monday, EUR-CHF made a rare appearance on the 'biggest daily mover' list out of the main dollar pairings and associated cross rates, when is showed a 1% gain on one day. The crosses yesterday matched the two-month high that was first pegged last week at 1.0841. The seven-month peak, seen in early June, is at 1.0921. The advent of the EU's recovery fund, seen as a milestone by many analysts (a new liquid AAA fund that also reduces Eurozone breakup risks) has by many accounts caused a re-weighting of the common currency in portfolios, and which will help the SNB combat what it sees as a chronically overvalued franc.

    [USD, CAD]
    USD-CAD rallied to a three-day high at 1.3372, rebounding out of yesterday's six-month low at 1.3231. This price action has been concomitant with a rebound in the U.S. dollar along with front-month WTI crude futures ebbing under $42.0 after capping out yesterday at a five-month peak at $43.52. The Canadian dollar will likely remain hostage to fluctuations to the U.S. dollar and oil prices. Downside risks for the Canadian dollar include the OPEC+ group's course to easing output quotas, which could weigh on oil prices, alongside the coronavirus pandemic and geopolitical tensions, should they derail the recovery in global asset markets.

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