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By XE Market Analysis February 14, 2020 11:08 am
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    XE Market Analysis: North America - Feb 14, 2020

    The dollar posted fresh highs against the euro and Swiss franc, while most other pairings remained steady, within ranges seen on Thursday. EUR-USD printed a fresh 34-month low at 1.0827, and is set for its biggest two-week loss since July 2019. The new low is the product of a prevailing phase of euro underperformance, which has built on a recent phase of dollar firmness. EUR-JPY set a four-month low, at 118.86, and EUR-CHF a near-five-year-low, at 1.0609. EUR-GBP yesterday saw a two-month low. USD-CHF, meanwhile, pegged a seven-week high, at 0.9813, aided higher by a risk-back-on sentiment in global markets today, which also saw the yen soften somewhat against the dollar and other currencies. Safe haven premiums in markets abated as the daily increment of new coronavirus cases in China fell back alongside narratives that are downplaying yesterday's jump in total reported cases in Hubei province as being just a reclassification. The coronavirus outbreak still has a "known unknown" quality, making it, and its eventual impact on the global economy, hard to call. This said, there seems to be a general consensus that the upcoming arrival of warmer weather in the northern hemisphere, combined with the virus containment measures being taken, will see contagion peak around March or April, after which economic activity in China and elsewhere will rebound sharply. Elsewhere among the main currencies, Cable has consolidated gains seen yesterday, holding just shy of the nine-day high at 1-3069. EUR-CHF lifted out of a near-five-year-low at 1.0609, and USD-CAD found a footing after dropping quite sharply earlier in the week.

    [EUR, USD]
    The euro posted fresh lows against the dollar and other currencies. EUR-USD posted a fresh 34-month low at 1.0827, and is set for its biggest two-week loss since July 2019. EUR-JPY printed a four-month low, at 118.86, and EUR-CHF a near-five-year-low, at 1.0609. EUR-GBP yesterday saw a two-month low. With regard to EUR-USD specifically, the dollar has been underpinned by the relative robustness of the U.S. economy, and 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 pair 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. The Eurozone economy, meanwhile, has been showing signs of sputtering.

    [USD, JPY]
    The yen's safe haven bid abated as the daily increment of new coronavirus cases in China fell back alongside narratives that are downplaying yesterday's jump in total reported cases in Hubei province as being just a reclassification. The coronavirus outbreak still has a "known unknown" quality, making it, and its eventual impact on the global economy, hard to call. This said, there seems to be a general consensus that the upcoming arrival of warmer weather in the northern hemisphere, combined with the virus containment measures being taken, will see contagion peak around March or April, after which economic activity in China and elsewhere will rebound sharply. Stimulative measures being taken by many central banks are also in the mix of things to be reasonably optimistic about. Assuming the virus doesn't worsen (as measured by the rate of contagion and rate of deaths), we are bullish of USD-JPY.

    [GBP, USD]
    Cable has consolidated gains seen yesterday, holding just shy of the nine-day high at 1-3069. The rallied yesterday, racking up a gain of just over 1% against an underperforming euro, following the unexpected news that Chancellor of the Exchequer (the UK's title for finance minister) Sajid Javid resigned, to be replaced by Rishi Sunak. The change is part of a post-election cabinet reshuffle, widely seen as a power shift in favour of the prime minister, Boris Johnson, that will suit his ambitious plans for a fiscally expansive policy to finance major infrastructure projects. The news comes with available January data out of the UK having so far confirmed a rebound in economic activity as the fog of political uncertainty cleared following the December general election. PM Johnson announced big plans for infrastructure projects earlier in the week, and with the new Chancellor in place, markets are anticipating the government's 2020-21 budget, to be detailed in March, to show a significant fiscal expansion. This has helped quell, for now, persisting 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]
    EUR-CHF has remained heavy since printing a near-five-year-low at 1.0609. 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.

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