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By XE Market Analysis June 12, 2020 7:16 am
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    XE Market Analysis: North America - Jun 12, 2020

    The dollar and yen fell back during the London morning after earlier posting fresh highs. Risk appetite picked up, reflected by a rebound in stock markets in Europe, and in S&P 500 and Nasdaq future, which with respective gains of around 2% and 1.5% retraced about a third of yesterday's regular-session decline. This also helped commodity currencies lift out of their lows. Asian share markets had been a sea of red, although most of the main indices still pared intraday losses, and China's CSI 300 index managed to creep into the black. Oil prices also lifted back to near net unchanged levels after front-month WTI futures pegged a 11-day low at $34.49, which marked a near 15% correction from the three-month high seen on Monday, at $40.40. The narrow trade-weighted USD index (DXY) ebbed back slightly after printing a three-day high at 96.93. EUR-USD concurrently ebbed to a three-day low at 1.1277 before recouping to near net unchanged levels near 1.1300. The risk-sensitive AUD-USD and AUD-JPY also printed fresh lows before rebounding. Sterling remained in the underperforming column of currencies, partly due to the continued lack of encouraging signs on the EU-UK trade negotiation front, and partly due to the UK currency's pandemic-era sensitivity to risk-off conditions. Cable printed an eight-day low at 1.2545.

    [EUR, USD]
    EUR-USD lifted out of a three-day low that was seen in pre-London trading at 1.1277. The pair returned to near net unchanged levels in the lower 1.1300s. Safe haven demand for the U.S. currency drove the pair lower, with the narrow trade-weighted USD index (DXY) lifting to a three-day high at 96.93, before a rebound across European equity markets catalyzed position trimming. EUR-JPY has seen a similar price action, with the yen having earlier found safe haven demand before retracing gains. We had been highlighting the risks for setbacks on the long road back to social and economic normalcy across the world. Investors, having driven many asset prices well into pre-pandemic valuations, are now watching the trend in new coronavirus infections, where in some reopened areas it has flared back up. A surge in new cases in the sates of Arizona, New Mexico and Utah (up 40% last week versus prior week's levels) are cases in point. With a vaccine and/or effective treatment remaining elusive, the premise for optimism about reopening economies has been based on the r-rate remaining below 1.0 (sub-1 readings indicating a contracting rate of new infections, and above 1 indicating an exponential increase in the rate of new infections).

    [USD, JPY]
    The yen posted fresh highs against most other currencies, although managed to pare losses as the pre-London session in the Asia-Pacific region progressed, with U.S. equity index futures managing about a 1% rebound after closing sharply lower on Wall Street yesterday. Asian share markets, meanwhile, were a sea of red, although most of the main indices pared intraday losses, and China's CSI 300 index managed to creep into the black. Oil prices remain soft, with front-month WTI futures dropping to an 11-day low at $34.49, which marked a near 15% correction from the three-month high seen on Monday, at $40.40. Investors, having driven many asset prices well into pre-pandemic valuations, are now fretting about a trending rise in new coronavirus infections in some areas where economic reopening has been ongoing for over a month. A surge in new cases in the sates of Arizona, New Mexico and Utah (up 40% last week versus prior week's levels) are cases in point. With a vaccine and/or effective treatment remaining elusive, the premise for optimism about reopening economies has been based on the r-rate remaining below 1.0 (sub-1 readings indicating a contracting rate of new infections, and above 1 indicating an exponential increase in the rate of new infections). This is now being tested, which is translating into concerns about the possibility for there being another bear phase in markets, which would generate demand for the yen.

    [GBP, USD]
    Sterling has remained in the underperforming column of currencies, partly due to the continued lack of encouraging signs on the EU-UK trade negotiation front, and partly due to the UK currency's pandemic-era sensitivity to risk-off conditions. Cable printed an eight-day low at 1.2545. UK April GDP data, released before the London interbank open, showed a 20.4% m/m contraction, which left the rolling three-month trend at -10.4%. April industrial production contracted 20.3% m/m. April should prove to be the nadir, as data from this month captured the full effect of the lockdown, which starred on March 23rd in the UK. Economic reopening started in mid May. Although the GDP and production data were even worse than median forecasts, the data has had little bearing on UK markets, which are looking ahead to economic reopening, both domestically and internationally, and how successful this can be in the continued absence of either a vaccine or effective treatment for the SARS Cov-2 coronavirus.

    [USD, CHF]
    EUR-CHF has fallen back in recent sessions, though has continued to trade comfortably above the series of lows near 1.0500 that were seen from March through to mid May. Committed SNB intervention prevented the 1.0500 level from being breached over this period, when the consequences of the pandemic increasing bets about a possible breakup of the euro area, and even the EU. However, since the Franco-German backed EU recovery fund gained traction in mid May, these bets have gone sour, which led to a rebound in EUR-CHF. The recovery fund is up for ratification at the June 18th-19th EU summit. Assuming this passes, as looks likely (though its form still remains unclear), this should keep EUR-CHF supported for a while. Further out, the Swiss economy will likely be better able to recover from the pandemic era than the eurozone economy. Along with Swtizerland's massive current account surplus, these are factors that suggest upside potential for EUR-CHF will be limited, regardless of the SNB's desire for weaker franc.

    [USD, CAD]
    The Canadian dollar has come under pressure, like other commodity and oil-correlating currencies, amid the backdrop of tumbling stock markets, which are correcting from lofty levels amid nascent signs of a second wave of coronavirus infections in some areas where economic reopening has been ongoing for a month or more. Oil prices remain soft, with front-month WTI futures dropping to an 11-day low at $34.49 today, which marked a near 15% correction from the three-month high seen on Monday, at $40.40. USD-CAD posted an 11-day high at 1.3666. A return to levels above 1.4000 looks likely, assuming the correction in global stocks, oil and other industrial commodity markets, continues.

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