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By XE Market Analysis February 20, 2020 7:17 am
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    XE Market Analysis: North America - Feb 20, 2020

    The yen has continued to underperform, and is showing a 2% decline against the dollar from yesterday's opening levels. USD-JPY printed a 10-month high at 112.19, and EUR-JPY posted a two-week high, at 121.09. There have been reports over the last day of major fund managers cutting yen longs against short regional Asian currency hedge positions, along with Japanese funds buying U.S. Treasuries, though most Asian currencies came under fairly heavy pressure today amid concerns about the coronavirus outbreak spreading regionally at an increased rate. While China reported a large drop in new cases, just as the PBoC delivered an expected rate cut, South Korea and Japan report increases in new cases. This news led to a mixed performance among Asian equity markets, with China outperforming while other benchmark indices sputtered. The Australian dollar also came under pressure following Australia's January employment report, which although slightly above forecasts in the headline jobs number, revealed an unexpected rise in the jobless rate, to 5.3% from 5.1% in December. AUD-JPY remained below its Wednesday high despite gains in USD-JPY and other yen crosses, while AUD-USD dropped over 0.5% in making an 11-year low at 0.6630. Elsewhere, the dollar posted fresh highs against many Asian and other developing-world currencies while advancing against all the main currencies, too. The narrow USD trade-weighted index (DXY) printed a 37-month high at 99.91. EUR-USD saw a 34-month low at 1.0778, while Cable breached recent lows on route to a three-month nadir, at 1.2849. USD-CAD lifted to the mid 1.3200s after seeing a three-week low at 1.3212, despite oil prices rising by about a further 0.5% today, bringing cumulative gains from recent lows to about 9%.

    [EUR, USD]
    EUR-USD has posted a fresh 34-month low, at 1.0778, reflecting about of broad dollar demand today, which has followed a phase of euro underperformance earlier in the week. The narrow USD trade-weighted index (DXY) printed a 37-month high at 99.85. While the euro has been on underperforming list of currencies over much of the last couple of weeks amid data showing a sputtering Eurozone economy, the dollar has been underpinned by the relative robustness of the U.S. economy. The U.S. currency continues to register as the strongest main currency on the year-to-date, with gains of around 5.5%-6% versus the weakest, the Australian and New Zealand dollars. Although the Fed has backed out of its tightening phase after hiking rates three times last year, yield differentials have been holding up, while the dollar has been finding a sporadic underpinning via safe haven demand for Treasuries. EUR-USD has been trending lower since early 2018, dropping from levels near 1.2500.

    [USD, JPY]
    The yen has continued to tumble, and is showing a near 2% decline against the dollar from yesterday's opening levels. USD-JPY printed a 10-month high at 112.10, and EUR-JPY posted a two-week high, at 121.00. There have been reports over the last day of major fund managers cutting yen longs, including against short regional Asian currency hedge positions, though most Asian currencies came under fairly heavy pressure today amid concerns about the coronavirus outbreak spreading regionally at an increased rate. There has also been talk of Japanese funds buying U.S. Treasuries. While China reported a large drop in new cases, just as the PBoC delivered an expected rate cut, South Korea and Japan report increases in new cases. This news led to a mixed performance among Asian equity markets, with China outperforming while other benchmark indices sputtered. Trying to call the point of peak contagion, and thereby the peak of economic disruption, is tough, though the consensus seems to be that it will happen in March or April, aided by the arrival of warmer weather in the northern hemisphere (although scientists aren't exactly sure if warm weather will have the same quelling effect as it does on flu and cold viruses). Japan's Q4 GDP data, released on Monday, disappointed, showing a 1.6% q/q contraction versus the median forecast for -0.9%. Q3 data were also revised down, and the figures came amid expectations for a dismal current quarter performance given the impact of measures to contain the virus outbreak. There is a risk that USD-JPY might sharply reverse gains should risk appetite in global markets deteriorate and sustain.

    [GBP, USD]
    Sterling has been trading mixed-to-lower, losing ground to both the dollar and euro while managing modest gains versus the underperforming yen and Australian dollar. Cable breached recent lows on route to a three-month nadir, at 1.2849, while EUR-GBP lifted to one-week highs. UK January retail sales beat expectations in rising 0.9% m/m, rebounding from the disappointing 0.5% m/m contraction that was seen in December (itself revised slightly higher, from -0.6% m/m), though to little lasting impact on the pound. Markets are more focused on tomorrow's release of the UK's preliminary PMI survey data for February, which is expected to show an abatement in activity following January's post-election bounce.

    [USD, CHF]
    EUR-CHF printed a fresh near-five-year-low, at 1.0606. The pronounced losses the cross has been seeing of late are largely a product of safe-haven demand for the franc. The U.S. last month 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 lifted above 1.3260 after seeing a three-week low at 1.3212, despite oil prices rising by about a further 0.5% today, bringing cumulative gains from recent lows to about 9%. The Canadian currency will likely remain to near-term volatility as long as the coronavirus contagion remains in a state of increasing spread. Canada releases retail sales data tomorrow, which are seen rising 0.1% in December after the 0.9% gain in November.

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