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By XE Market Analysis February 13, 2020 7:36 am
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    XE Market Analysis: North America - Feb 13, 2020

    The yen and Swiss franc rose as a risk-off sentiment once again took hold in global markets following news of sharp increase in coronavirus cases. That the rise in cases was the product of a new methodology for counting infections, lowering the bar in what counts for an infection by using a tomography scan rather than slower ribonucleic acid tests, and that the rise in new cases was confined to where this new method was being used, in China's Hubei province (where the virus originated), didn't matter, as the news left a sense that the spread might be a lot worse that previously thought. European and Asian stock markets tumbled, and S&P 500 futures lost 0.7%. In forex markets, USD-JPY and most yen crosses more than reversed Wednesday's gains. USD-JPY dove to a three-day low at 109.61, correcting from the three-week high that was seen at 110.13. AUD-JPY, widely seen as a forex market barometer of risk appetite in global markets and a liquid currency proxy of China, dropped by 0.5%. AUD-USD posted a two-day low at 0.6707. EUR-CHF fell further into major-trend low territory, printing a low at 1.0622, the lowest level seen since August 2015. Elsewhere, EUR-USD descended further into the 33-year low terrain in making a low at 1.0861. Cable posted a two-day low at 1.2944, though managed to recover back above 1.3000. USD-CAD found a footing after dropping quite sharply over the previous two days. The pair lifted back above 1.3270, putting a little distance in from the 10-day low seen yesterday at 1.3236.

    [EUR, USD]
    EUR-USD descended further into the 33-year low terrain in making a low at 1.0861. The new low was a product of a phase of euro underperformance, which build on the dollar-driven losses that were seen yesterday. The narrow trade-weighted USD index yesterday posted a four-month peak. The dollar, underpinned by the relative robustness of the U.S. economy, continues to register as the strongest main currency on the year-to-date, with gains of around 4% versus the weakest, the Australian and New Zealand dollars. EUR-USD has been trending lower since early 2018, dropping from levels near 1.2500. Although the Fed has backed out of its tightening phase after hiking rates three times last year, the dollar has been finding an underpinned via safe haven demand for Treasuries.

    [USD, JPY]
    The yen has rallied as a risk-off sentiment once again taken hold in global markets following news of sharp increase in coronavirus cases. That the rise in cases was the product of a new methodology for counting infections, lowering the bar in what counts for an infection by using a tomography scan rather than slower ribonucleic acid tests, and that the rise in new cases was confined to where this new method was being used, in China's Hubei province (where the virus originated), didn't matter, as the news left a sense that the spread might be a lot worse that previously thought. Asian stock markets tumbled, and S&P 500 futures lost 0.5%. USD-JPY and most yen crosses more than reversed Wednesday's gains. USD-JPY dove to a three-day low at 109.61, correcting from the three-week high that was seen at 110.13. AUD-JPY, widely seen as a forex market barometer of risk appetite in global markets and a liquid currency proxy of China, dropped by 0.5%.

    [GBP, USD]
    Cable posted a two-day low at 1.2944, dragged lower by declines in EUR-USD amid broader dollar firmness. The pound has fared better against the euro, posting a two-month high, continuing what has been an overall mixed performance of the UK currency so far in 2020. Available January data out of the UK have shown a rebound in economic activity as the fog of political uncertainty cleared following the December general election, while Prime Minister Johnson yesterday announced big plans for infrastructure projects (increasing expectations for the government's 2020-21 budget, to be detailed in March, to show a significant expansion in fiscal boost). These have helped quell, for now, concerns about Brexit and divergence from the EU.

    [USD, CHF]
    EUR-CHF once again fell further into major-trend low territory, printing a low at 1.0622, the lowest level seen since August 2015. The pronounced losses the cross has been seeing are partly a product of safe-haven demand for the franc, and partly as a lasting consequence of the surprising decision by the U.S. to add Switzerland to its list of currency manipulators last month. The U.S. 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 found a footing after dropping quite sharply over the previous two days. The pair lifted back above 1.3250, putting a little distance in from the 10-day low seen yesterday at 1.3236. The price action reflects a a return of risk-off positioning, which has weighed on oil prices and, in turn, the Canadian dollar. A new methodology for testing the coronavirus in China has revealed a much bigger amount of infections than previously thought.

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