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By XE Market Analysis October 21, 2020 2:49 pm
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    XE Market Analysis Posts: 5358
    XE Market Analysis: Asia - Oct 21, 2020

    The Dollar was choppy in N.Y. trade on Wednesday, though ultimately ended lower overall. The DXY printed a seven-week low of 92.47, down from early highs of 92.83. The USD tended to move in the opposite direction to the risk-backdrop, which shifted through the session on the back of stimulus concerns, the election and Covid. Wall Street spent the day traversing between modest gains to modest losses. Treasury yields were slightly higher. There was no incoming data of note. EUR-USD rallied from opening lows of 1.1841 to 1.1881. USD-JPY broke lower, selling off to 104.34 from early highs over 104.90. USD-CASD faded early, dropping to 1.3102, then later recovering to 1.3140. GBP-USD printed a six-week high of 1.3177, up from early lows of 1.3102. Thursday's U.S. data will have weekly jobless claims, leading indicators and existing home sales.

    [EUR, USD]
    EUR-USD topped at 1.1881, levels last seen on September 16. The pairing has since eased back to 1.1865 lows, as traders took the pullback on Wall Street as a reason to cover USD shorts. The Dollar has slightly turned the corner against its other major peers as well, a sign that risk-off conditions are providing some support to the Greenback. Volatility will likely continue until there is concrete news on the stimulus negotiations. In the meantime, USD direction will largely continue to be determined by Wall Street.

    [USD, JPY]
    USD-JPY has broken out of the narrow trading range seen over the past week or so, trading to 104.34 lows from the 105.52 high seen after the N.Y. close on Tuesday. Selling picked up on the break under 105.00, which had not been breached since October 2, and then only briefly. Broad Dollar weakness was a driver, as the DXY fell to its lowest since early September, toughing 92.58 from near 93.10 after Tuesday's close. Hopes for new U.S. stimulus have weighed on the USD as well, raising inflation expectations. Higher prices generally indicate higher interest rates are on the way, but with the Fed not raising rates anytime soon, the USD could continue to suffer.

    [GBP, USD]
    Cable hit a six-week peak of 1.3177 after the London close. A Bloomberg article, citing unnamed sources, said that trade talks between the EU and UK will be resuming with the aim of striking a deal by the end of the month. Barnier and Frost are also spoke on Wednesday. U.S. Trade Representative Robert Lighthizer also said that that a trade agreement with the UK would come "reasonably soon." Also in the mix was Johnson stating that there will not be another national Covid lockdown, which may have cheered sterling bulls further. Despite the strongly bullish prevailing bias, we remain bearish on the pound over the medium to longer term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal will see trading friction and costs rise.

    [USD, CHF]
    The Swiss franc has been trading with a firming bias, consistently rebounding from bouts of weakness in recent months and driving the EUR-CHF cross to levels under 1.0700 last week for the first time in three months. Markets are anticipating revamped monetary easing measures from the ECB while factoring in Brexit risk. The franc has a proclivity to ascend on the back of its balance of payments position. The SNB stated at its quarterly monetary policy review last month that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market."

    [USD, CAD]
    USD-CAD dipped to 1.3102 from 1.3128 following the warmer Canada September CPI. Downside was limited as Canada August retail sales came in on the light side of expectations. The pairing had hit six-week lows of 1.3081 overnight, as oil prices remained relatively firm, and as the USD came under general pressure. WTI crude later stumbled, dipping under the key $40 mark, allowing USD-CAD to rally back to 1.3040 highs. The next downside target is the September 7 low of 1.3049.

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    Topics7434 Posts7479
    By XE Market Analysis October 21, 2020 7:19 am
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      XE Market Analysis Posts: 5358
      XE Market Analysis: North America - Oct 21, 2020

      The dollar underperformed while the pound outperformed and the yen, diverging from its usual close correlation with the dollar, was measuring as the second strongest of the main currencies. Global stock markets have been skittish, with European indices dropping and U.S. equity index futures giving back gains in returning to near net unchanged levels. Sterling has rallied quite strongly, showing a 0.8% gain on the dollar at prevailing levels, although 20 pips or so off the one-week high that was seen earlier at 1.3064. EUR-GBP is back under 0.9100 and down nearly 0.5%. The market reacted to remarks from EU trade negotiator, Barnier, that talks with the UK could continued "day and night." There was also news that U.S. Trade Representative Robert Lighthizer said that that a trade agreement with the UK would come "reasonably soon." The currency market evidently remains bullish on the EU and UK reaching an agreement, although the game of chicken between the two sides is continuing. Boris Johnson's position is that the EU must fundamentally change its stance, while France's European affairs minister Clément Beaune asserted yesterday that there would be "no new approach." USD-JPY tumbled under 105.00 on route to printing a one-month low at 104.88. EUR-USD lifted to a one-month high at 1.1868. USD-CAD posted a new low for a fourth consecutive day in pegging a six-week low at 1.3080 before recouping back above 1.3100 amid a near 2% drop in oil prices.

      [EUR, USD]
      The euro has gained against most currencies during the European morning session, with the notable exceptions of the pound, alongside the Australian and New Zealand dollars. A prevailing view that the EU and UK, despite the headline dramatics, are heading for a free trade deal, albeit a limited one, have helped give both the pound and euro an underpinning. Buoyant stock markets have been an added factor in underpinning EUR-USD and EUR-JPY, given the suppressing effect on the dollar and yen as risk premia are adjusted. These considerations have offset the surge in new Covid cases in Europe, which has accelerated in some countries and is leading to increasingly draconian restrictions, which will have consequences on economic activity and maintain the pressure on the ECB for more expansive monetary accommodation. While we are would-be dollar bears, the proclivity for capital being safe harboured in U.S. Treasuries means this is hinged on the global growth outlook establishing a sustainable improving trend, and that in turn may hinge on the world getting through the Covid crisis. The upcoming U.S. elections present risks too, particularly given the perceived chance of the election being contested. Markets are anticipating another U.S. fiscal package, although the timing remains uncertain, and the size and scope of it will be dependent on the election result. Wall Street narratives suggest that U.S. stock markets are pricing in a blue wave on November 3, with Democrats sweeping the House, Senate and Presidency, which would result in many trillions of dollars in fiscal support. On balance, and despite the prevailing upside bias, we remain bearish on EUR-USD at this juncture.

      [USD, JPY]
      USD-JPY has tumbled under 105.00 on route to printing a one-month low at 104.88. This mostly reflects broad weakness in the dollar, though EUR-JPY has concurrently down 0.3%. Other yen crosses are mixed. Some market narratives have been talking about China's recent buying spree for JGBs, which may be due to political reasons (shifting capital out of U.S. Treasuries and into other foreign government bonds, including JGBs) and/or Japanese pension fund buying of foreign assets, which resulted in yen deposits at Chinese accounts, which are then parked in JGBs. The yen is also retains an inverse correlation with global stock markets. Stock markets in Europe and turned lower and U.S. equity index futures have given back earlier gains. The dollar has remained weak despite this, suggesting markets are not presently viewing the dollar as a safe haven trade. Overall, a somewhat convoluted picture, with markets in a skittish mood, leading to choppy conditions in stocks and other markets. The approaching U.S. elections, now less than two weeks away, are seen as a risk event given the perceived risk of it be contested, which in this scenario could lead to a messy political scene for a time and delay fiscal stimulus further (which looks unlikely to happen this side of the election). The ongoing surge in new Covid cases in the more northern parts of North America and, more especially, in Europe is alarming given the associated implementation of ever more draconian measures. The biggest directional force on the Japanese currency will remain shifting risk premia in global markets. Japan's surplus economy, where yield-seeking domestic investors are apt to invest in foreign assets during times of confidence, but repatriate funds when times are uncertain, is recognized in the currency market and has established the yen as a low-beta haven currency.

      [GBP, USD]
      Sterling has rallied quite strongly, showing a 0.8% gain on the dollar at prevailing levels, although 20 pips or so off the one-week high that was seen earlier at 1.3064. EUR-GBP is back under 0.9100 and down nearly 0.5%. The market reacted to remarks from EU trade negotiator, Barnier, that talks with the UK could continued "day and night." There was also news that U.S. Trade Representative Robert Lighthizer said that that a trade agreement with the UK would come "reasonably soon." The currency market evidently remains bullish on the EU and UK reaching an agreement. But the game of chicken between the two sides is continuing. Boris Johnson's position is that the EU must fundamentally changes its stance, while France's European affairs minister Clément Beaune asserted yesterday that there would be "no new approach." The bullish stance of France fits with a BBC article earlier in the week reporting that Barnier has been feeling "frustrated" with leaders of coastal EU nations for not (yet) allowing him to proceed on tackling inevitable compromises on fishing rights. While fishing is a low GDP contributor on both sides of the Channel, it's a politically highly sensitive area for all, and is totemic for Brexiteers. From the perspective of the so-called coastal 8, it's a choice between no fishing rights in UK waters under a no deal scenario versus reduced quotas with an agreement. Given that, currently, more than half of the UK's annual fishing quota is foreign owned, surely a sensible resolution can be found. There is a view that some players in the EU are wanting to draw out the negotiation as long as possible to take away time for other states to propose tweaks to an agreement. We remain bearish on the pound over the medium to longer term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal will see trading friction and costs rise. Note that Wales has announced it will be going into a 17-day full lockdown, and that Moody's has downgraded UK sovereign debt to Aa3 from Aa2.

      [USD, CHF]
      The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

      [USD, CAD]
      USD-CAD posted a new low for a fourth consecutive day in pegging a six-week low at 1.3080. Broad weakness in the U.S. dollar has been the principal driven today, and while oil prices are down by over 1% today, this follows crude hitting a seven-week peak yesterday. USD-CAD subsequently lifted back above 1.3100 as European stock markets came under pressure. The trend is firmly to the downside, though there are derailing risks, including the U.S. election and the trend toward more draconian Covid-related measures as the northern hemisphere heads into winter. For now, ongoing expectations for expansive global fiscal and monetary policies are keeping asset markets, and asset currencies like the Canadian dollar, underpinned.

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      Topics7434 Posts7479
      By XE Market Analysis October 21, 2020 4:49 am
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        XE Market Analysis: Europe - Oct 21, 2020

        The dollar is softer across the board amid a backdrop of buoyant global stock markets and declining risk premia. U.S. House speaker Pelosi said that she is hopeful that a deal on fiscal stimulus can be reached this week, while markets are also factoring in rising prospects for further central bank stimulus, especially in Europe where the trend toward increasingly draconian Covid measures is threatening a double dip recession. The prevailing upbeat mood could change in a flash. The Senate is unlikely to pass the sizeable package that the Democrats and White House appear to be narrowing in on. The upcoming U.S. election poses event risk given the perceived risk of the outcome being contested, although the magnitude of Biden's lead in the polls has attenuated this perception somewhat. The there is the Covid situation in Europe, and in Canada and many U.S. states, where new cases are billowing. While this is inspiring increased expectations for further stimulus, this should be weighed against the reality of falling economic activity of an unknown duration. Ireland, for instance, announced a 'level 5' full national lockdown, which will last six weeks. Wales is also entering a full lockdown, while even Sweden is implementing localised lockdown measures (on a voluntary basis). Among currencies, the DXY USD index fell to a one-month low at 92.78 in what is a fourth consecutive day of decline. EUR-USD concurrently lifted to a one-month high at 1.1864. The euro outperformed yesterday on the back of strong investor demand for the EU's first offering of social bonds, which will finance a jobs program. Data also showed a rise in the Eurozone's current account surplus. Today, however, the euro traded steadily against most currencies outside the case against the dollar. Elsewhere, USD-JPY fell to a six-day low at 105.16. Most yen crosses were stable. The pound rose 0.5% in posting a two-day high against the dollar at 1.3011, and showed modest gains against the euro and other currencies. The price action is revealing of the market's confidence that the EU and UK will reach trade deal.

        [EUR, USD]
        EUR-USD lifted to a one-month high at 1.1864. The euro outperformed yesterday on the back of strong investor demand for the EU's first offering of social bonds, which will finance a jobs program. Data also showed a rise in the Eurozone's current account surplus. Today, however, the euro traded steadily against most currencies outside the case against the dollar. Regarding the EU bonds, this was the first issue of the EU's €750 triple-A pandemic recovery fund, raising €233 bln. The evident popularity of the offering will likely raise demand for further joint issuance, especially from cash-strapped governments in Rome and Madrid. The jointly issued recovery fund is seen as a milestone by many analysts, and reducing Eurozone breakup risks. The increased confidence in the integrity of the eurozone, along with the the existence of a new AAA fund, should attract foreign capital. Together with the Eurozone's current account surplus (net inflow of remittances, the trade surplus, and net inflow of international interest receipts), this is a positive for the euro. The Eurozone also has a positive differential real interest rate differential versus the U.S., where inflation is running above 1% compared to mild deflation in the Eurozone. The inflation-adjusted yield on U.S. bonds is also at a negative differential to real Bund yields, at least out to the 10-year maturity. Overall, a bullish structure for EUR-USD. But, there are countervailing forces and risks. One is Brexit, and the risk of a no deal, although the stability of the pound reveals that market participants are confidence that a deal will be reached. Another is the surging Covid cases across Europe, which is leading to more stringent containing measures relative to the U.S., which could create a growth differential in favour of the U.S. The upcoming U.S. elections present risks too, given the perceived chance of the election being contested. Markets are anticipating another U.S. fiscal package, although legislation is unlikely to be passed this side of the elections, and the size and scope of future stimulus will be dependent on the election result. Overall, we are bullish on EUR-USD, especially in the longer term, though any fresh bout of risk aversion would likely support the dollar.

        [USD, JPY]
        USD-JPY fell to a six-day low at 105.16 on the back of broader declines in the dollar. Most yen crosses were stable, including AUD-JPY after steep declines over the last day. While risk appetite has picked up on expectations for further fiscal and monetary stimulus, globally, markets are likely to remain skittish, overall, into the U.S. elections, now less than two weeks away, given the perceived risk of it be contested, which in this scenario could lead to a messy political scene for a time and delay fiscal stimulus further (which looks unlikely to happen this side of the election). The ongoing surge in new Covid cases in the more northern parts of North America and, more especially, in Europe is alarming given the concomitant implementation of ever more draconian measures .The biggest directional force on the Japanese currency will remain shifting risk premia in global markets. Japan's surplus economy, where yield-seeking domestic investors are apt to invest in foreign assets during times of confidence, but repatriate funds when times are uncertain, has established the yen as a low-beta haven currency.

        [GBP, USD]
        The pound rose 0.5% in posting a two-day high against the dollar at 1.3011, and showed modest gains against the euro and other currencies. The price action is revealing of the market's confidence that the EU and UK will reach trade deal. The Brexit endgame remains in sharp focus. Talks are continuing between the EU and UK, though there has been no sign of a breakthrough, while Boris Johnson and senior minister Michael Gove have launched a high-profile campaign to encourage UK businesses to prepare for major changes, including a no deal scenario. A BBC journalist reported earlier in the week that the EU's chief negotiator, Bernier, has been feeling "frustrated" with leaders of coastal EU nations for not (yet) allowing him to proceed on tackling inevitable compromises on fishing rights. From the perspective of the so-called coastal 8, it's a choice between no fishing rights in UK waters under a no deal scenario versus reduced quotas with an agreement. While fishing is a low GDP contributor on both sides of the Channel, it's a highly politically sensitive area for all, and is totemic for Brexiteers. Currently more than half of the UK's annual fishing quota is foreign owned. The game of chicken between the coastal 8 and the UK continues, but surely a sensible resolution will be found. Regarding Johnson's controversial Internal Market Bill, the expectation is that he will concede by removing the offending passages in it -- i.e. the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement (likely his plan all along; a ruse aimed at strengthening a weak negotiating position). We remain bearish on the pound over the medium term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal will see trading friction and costs rise. Note that Wales has announced it will be going into a 17-day full lockdown, and that Moody's has downgraded UK sovereign debt to Aa3 from Aa2.

        [USD, CHF]
        The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

        [USD, CAD]
        USD-CAD is down for a fourth consecutive day, posting a six-week low at 1.3080. Broad weakness in the U.S. dollar has been the principal driven today, and while oil prices are down by over 1% today, this follows crude hitting a seven-week peak yesterday. Buoyant global stock markets is also a positive backdrop for the Canadian dollar. The trend is firmly to the downside, though there are derailing risks, including the U.S. election and the trend toward more draconian Covid-related measures as the northern hemisphere heads into winter. For now, ongoing expectations for expansive global fiscal and monetary policies are keeping asset markets, and asset currencies, like the Canadian dollar, underpinned.

        XE Currency Blog

        Topics7434 Posts7479
        By XE Market Analysis October 20, 2020 2:18 pm
          XE Market Analysis's picture
          XE Market Analysis Posts: 5358
          XE Market Analysis: Asia - Oct 20, 2020

          The Dollar was lower on Tuesday, with risk-on conditions weighing. The DXY fell to a one-month low of 93.00, down from 93.29 at the open. Wall Street rallied, as renewed hopes for a fiscal stimulus package brought in buyers. Pelosi and Mnuchin are set to hold another round of talks on Tuesday, after it was reported that differences are being narrowed. It remains to be seen if a package is agreed to before the election just two-weeks away. Treasury yields were slightly firmer. For data, September U.S. housing starts missed consensus, but had little impact on markets. EUR-USD printed one-month highs of 1.1851 after opening near 1.1800. USD-JPY peaked at 105.75 early, later easing back toward 105.50. USD-CAD fell from 1.3197 to 1.3111, while GBP-USD chopped between 1.2911 and 1.2975, settling near mid-range into the close.

          [EUR, USD]
          EUR-USD chugged its way up to one-month highs of 1.1841, as risk-on again pressures the Dollar. In addition, the EU's first offering of social bonds designed to finance a jobs program, received orders of more than EUR 233 bln, which has underpinned the Euro as well. The surge in Covid cases in major European countries will likely prove to be a counterbalance for EUR-USD as new lockdowns and restrictions are implemented, with potential to snuff out the nascent EU economic recovery. According to NYT data, new cases in Germany are up 176% over the past two-weeks, with deaths up 169%. In France, the metrics show a 104% rise in cases and a 60% increase in deaths. EUR-USD support is at the 50-day moving average of 1.1795, with resistance at the September 21 top of 1.1872.

          [USD, JPY]
          USD-JPY printed seven-session highs of 105.74, up from overnight lows of 105.49, and opening lows of 105.60. Sellers later emerged into the 50-day moving average at 104.75, which saw the pairing ease back toward 105.50. The dueling safe-haven currencies continue to keep trading ranges hemmed in, with USD-JPY managing just a 105.81 to 105.04 band since October 12. More of the same can be expected for the time being.

          [GBP, USD]
          Cable was choppy in N.Y. trade on Tuesday, touching 1.2979 highs into the open, later falling to 1.2911 before hitting 1.2975 highs. The Brexit endgame remains in sharp focus. Talks are continuing between the EU and UK, though there has been no sign of a breakthrough, while Boris Johnson and senior minister Michael Gove have launched a high-profile campaign to encourage UK businesses to prepare for major changes, including a no deal scenario. The consensus expectation, as reflected by the stability of the pound, remains for a limited deal to be produced by mid November and ratified on both sides of the Channel in time for the conclusion of the transition period at year end. We remain bearish on the pound over the medium term.

          [USD, CHF]
          The Swiss franc has been trading with a firming bias, consistently rebounding from bouts of weakness in recent months and driving the EUR-CHF cross to levels under 1.0700 last week for the first time in three months. Markets are anticipating revamped monetary easing measures from the ECB while factoring in Brexit risk. The franc has a proclivity to ascend on the back of its balance of payments position. The SNB stated at its quarterly monetary policy review last month that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market."

          [USD, CAD]
          USD-CAD hit session highs of 1.3197 just after the North American open, reacting to the modest downturn in WTI crude prices. Since then, the slight pullback in the USD generally, given current risk-on conditions and a subsequent rebound in crude saw the pairing ease to 1.3111 lows into the close. The 50-day moving average at 1.3207 marks resistance now, with support seen at Monday's low at 1.3151. Focus will shift to Wednesday, where Canada releases September CPI and August retail sales. We see overall CPI to fall 0.3%, and total retail sales up 1.1%.

          XE Currency Blog

          Topics7434 Posts7479
          By XE Market Analysis October 20, 2020 7:17 am
            XE Market Analysis's picture
            XE Market Analysis Posts: 5358
            XE Market Analysis: North America - Oct 20, 2020

            The euro has rallied against peer currencies. The common currency was showing, as of the late London morning, a near 0.5% gain on the dollar, and slightly more than this in the case against the yen, alongside gains of 0.7% and 0.9% versus the Australian and New Zealand dollars. EUR-USD printed a one-week high at 1.1818 while EUR-JPY ascended into eight-day high terrain. Underpinning was the EU's first offering of social bonds designed to finance a jobs program received orders of more than EUR 233 bln. The issue is the first since the EU announced the EUR 750 bln jointly funded pandemic recovery deal. The triple-A rating offering is proving to be a hit, which will likely raise demands for further joint issuance. The recovery fund is seen as a milestone by many analysts, which reduces Eurozone breakup risks. Data also showed a widening Eurozone's current account surplus in August, which offset the capital account deficit (and which will in any case increases the net surplus of interest receipts). Elsewhere, USD-JPY remained buoyant after posting a a one-week high at 105.61 in what is a second consecutive day of ascent, albeit in the context of narrow ranges. Yen crosses also rose, with the Japanese currency's weakness being concomitant with most European stock markets and U.S. equity index futures tracking higher. USD-CAD edged out a high at 1.3204, surpassing Monday's peak by 8 pips. The pound was mixed after registering as the biggest gainer yesterday. The Brexit endgame remains sharply in focus. A limited free trade deal is the consensus expectation. Headline-grabbing antics of some political leaders should be largely ignored at this stage. Markets are likely to remain skittish, overall, into the U.S. elections, which are now just two weeks away, given the perceived risk of it being contested, which in such a scenario could lead to a messy political scene for a time, and a further delay fiscal stimulus further (which looks unlikely to happen this side of the election). The ongoing surge in new Covid cases in the more northerly parts of North America and, more especially, in Europe is alarming given the concomitant implementation of ever more draconian measures.

            [EUR, USD]
            The euro has gained against most currencies during the European morning session, with the notable exceptions of the pound, alongside the Australian and New Zealand dollars. A prevailing view that the EU and UK, despite the headline dramatics, are heading for a free trade deal, albeit a limited one, have helped give both the pound and euro an underpinning. Buoyant stock markets have been an added factor in underpinning EUR-USD and EUR-JPY, given the suppressing effect on the dollar and yen as risk premia are adjusted. These considerations have offset the surge in new Covid cases in Europe, which has accelerated in some countries and is leading to increasingly draconian restrictions, which will have consequences on economic activity and maintain the pressure on the ECB for more expansive monetary accommodation. While we are would-be dollar bears, the proclivity for capital being safe harboured in U.S. Treasuries means this is hinged on the global growth outlook establishing a sustainable improving trend, and that in turn may hinge on the world getting through the Covid crisis. The upcoming U.S. elections present risks too, particularly given the perceived chance of the election being contested. Markets are anticipating another U.S. fiscal package, although the timing remains uncertain, and the size and scope of it will be dependent on the election result. Wall Street narratives suggest that U.S. stock markets are pricing in a blue wave on November 3, with Democrats sweeping the House, Senate and Presidency, which would result in many trillions of dollars in fiscal support. On balance, and despite the prevailing upside bias, we remain bearish on EUR-USD at this juncture.

            [USD, JPY]
            The euro has rallied against peer currencies. The common currency was showing, as of the late London morning, a near 0.5% gain on the dollar, and slightly more than this in the case against the yen, alongside gains of 0.7% and 0.9% versus the Australian and New Zealand dollars. EUR-USD printed a one-week high at 1.1818 while EUR-JPY ascended into eight-day high terrain. Underpinning was the EU's first offering of social bonds designed to finance a jobs program received orders of more than EUR 233 bln. The issue is the first since the EU announced the EUR 750 bln jointly funded pandemic recovery deal. The triple-A rating offering is proving to be a hit, which will likely raise demands for further joint issuance. The recovery fund is seen as a milestone by many analysts, which reduces Eurozone breakup risks. Data also showed a widening Eurozone's current account surplus in August, which offset the capital account deficit (and which will in any case increases the net surplus of interest receipts). Elsewhere, USD-JPY remained buoyant after posting a one-week high at 105.61 in what is a second consecutive day of ascent, albeit in the context of narrow ranges. Yen crosses also rose, with the Japanese currency's weakness being concomitant with most European stock markets and U.S. equity index futures tracking higher. USD-CAD edged out a high at 1.3204, surpassing Monday's peak by 8 pips. The pound was mixed after registering as the biggest gainer yesterday. The Brexit endgame remains sharply in focus. A limited free trade deal is the consensus expectation. Headline-grabbing antics of some political leaders should be largely ignored at this stage. Markets are likely to remain skittish, overall, into the U.S. elections, which are now just two weeks away, given the perceived risk of it being contested, which in such a scenario could lead to a messy political scene for a time, and further delay fiscal stimulus further (which looks unlikely to happen this side of the election). The ongoing surge in new Covid cases in the more northerly parts of North America and, more especially, in Europe is alarming given the concomitant implementation of ever more draconian measures.

            [GBP, USD]
            The pound is mixed today after registering as the biggest gainer yesterday. Cable settled in the mid 1.2900s after yesterday pegging a high at 1.3025. Taking a step back, the BoE-calculated effective real sterling exchange rate is down by nearly 4% on the year-to-date, although up by just over 6% from the March-23 low, and is down by almost 11% from levels that were prevailing just ahead of the vote to leave the EU in late June 2016. Talks between the EU and UK are continuing, despite Boris Johnson's political grandstanding on Friday when he said that discussions were over, although having been downgraded by the Downing Street to video conferences (a EU delegation had been set to arrive in London this week). The consensus expectation remains for a limited deal to be produced by mid November and ratified on both sides of the Channel in time for the conclusion of the transition period at year end. A BBC journalist reported that the EU's Barnier is "frustrated" with leaders of coastal EU nations for not (yet) allowing him to proceed on tackling inevitable compromises on fishing rights. Political pundits and market participants appear to be confident a deal will be reached, being, from the perspective of the so-called coastal EU nations, a simple choice between no fishing rights in UK waters under a no deal scenario versus reduced quotas under an agreement. Note that currently more than half of the UK's annual fishing quota is foreign owned. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it -- i.e. the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement -- which was likely his plan all along. We remain bearish on the pound over the medium term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal with increase trading friction and costs. Note that Wales has announced it will be going into a 17-day full lockdown, and that Moody's last Friday downgraded UK sovereign debt to Aa3 from Aa2.

            [USD, CHF]
            The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

            [USD, CAD]
            USD-CAD edged out a high at 1.3202, surpassing Monday's peak by 6 pips. The Canadian dollar tracked oil prices, which have pulled back from the 11-day highs that were seen yesterday. Sharply rising new Covid tests remain a worry to the global outlook given the increasingly stringent countermeasures being implemented in Europe, but also areas in North America. The perceived risk of the upcoming U.S. election being contested is also a concern, although the polling trend in favour of Biden suggests this perceived peril may be receding somewhat. We retain a bearish view of USD-CAD in the bigger picture, though this hinges on getting through the Covid crisis.

            XE Currency Blog

            Topics7434 Posts7479
            By XE Market Analysis October 20, 2020 3:47 am
              XE Market Analysis's picture
              XE Market Analysis Posts: 5358
              XE Market Analysis: Europe - Oct 20, 2020

              The Australian dollar continued to weaken, this time with RBA Assistant Governor Kent saying that the board is considering another easing, which backed up the Governor Lowe's recent messaging, that a rate cut and other monetary easing measures are in the works. AUD-USD, which has dropped every day since last Monday, fell by nearly 0.5% in posting a three-week low at 0.7031. The November ASX 30-day interbank cash rate futures is indicating about a 75% expectation for the RBA to cut the official cash rate by 25 bp to 0.00% at the board meeting on November 3. The New Zealand dollar also came under pressure, falling into 12-day low territory against the U.S. dollar. USD-JPY lifted to a one-week high at 105.61 in a second consecutive day of ascent, albeit in the context of narrow ranges. EUR-JPY also remained buoyant, though remained below its Monday high, while AUD-JPY dove to a three-week low at 74.20. Overall, a mixed performance for the yen. As for the dollar, also a mixed picture, rising against the antipodean dollar-bloc currencies and yen, but flatlining against the euro and sterling, among other currencies. USD-CAD edged out a high at 1.3202, surpassing Monday's peak by 6 pips. Sentiment in global markets is fragile. Wall Street yesterday and most stock markets in Asia today dropped, though U.S. equity futures have managed a partial recovery of Monday's losses. The looming U.S. elections, now just two weeks away, seems to be encouraging defensive positioning given the perceived risk of it be contested, which in such a scenario could lead to a messy political scene for a time and delay fiscal stimulus further (assuming this won't happen this side of the election). The ongoing surge in new Covid cases in the more northern parts of North America and, more especially, in Europe is alarming given the concomitant implementation of ever more draconian measures (Wales is about to enter a two-week 'total' lockdown and France is under night time curfew, for instance). Brexit also remains sharply in focus. The consensus, as evidenced by the stability of the pound, is that the EU and UK will reach a limited trade deal in time to be ratified on both sides of the Channel by year end.

              [EUR, USD]
              EUR-USD has settled lower after posting a one-week high at 1.1795 yesterday. The euro has more generally settled lower after rising against most currencies yesterday. A prevailing view that the EU and UK, despite the headline dramatics from political leaders, are heading for a free trade deal, albeit a limited one, have helped give both the pound and euro an underpinning over the last day, though wobbly global stock markets have helped put a cap on EUR-USD an EUR-JPY given the associated safe haven bid for the dollar and yen. We are leery about the euro's prospects at this juncture given the surge in new Covid cases in Europe, which has accelerated in some countries and is leading to increasingly draconian restrictions, and which will have consequences on economic activity and maintain the pressure on the ECB for more expansive monetary accommodation. And while we are at the same time would-be dollar bears, the proclivity for capital being safe harboured in U.S. Treasuries means this is hinged on the global growth outlook establishing a sustainable improving trend, and that in turn may hinge on the world getting through the Covid crisis. The upcoming U.S. elections present risks too, particularly given the perceived chance of the election being contested. Markets are anticipating another U.S. fiscal package, although legislation is unlikely to be passed this side of the elections, and the size and scope of it will be dependent on the election result. Wall Street narratives suggest that U.S. stock markets are pricing in a blue wave on November 3, with Democrats sweeping the House, Senate and Presidency, which would result in many trillions of dollars in fiscal support. On balance, we remain bearish on EUR-USD at this juncture.

              [USD, JPY]
              USD-JPY lifted to a one-week high at 105.61 in a second consecutive day of ascent, albeit in the context of narrow ranges. EUR-JPY has also remained buoyant, though remaining below its Monday high, while AUD-JPY, in contrast, has fallen to a three-week low at 74.20 on the back of a generally weak Australian dollar (which is down for a seventh straight day as markets discount further RBA easing). Overall, a mixed performance for the yen. Wall Street and most stock markets in Asia dropped, though U.S. equity futures have managed a partial recovery of yesterday's losses. The looming U.S. elections, now just two weeks away, seems to be encouraging a degree of defensive positioning and hedging given the risk of it be contested, which could lead to a messy political scene for a time and delay fiscal stimulus further (which looks unlikely to happen this side of the election). The ongoing surge in new Covid cases in the more northern parts of North America and, more especially, in Europe is alarming given the concomitant implementation of ever more draconian measures (Wales is about to enter a two-week 'total' lockdown and France is under night time curfew, for instance). The biggest directional force on the Japanese currency will, however, remain shifting risk premia in global markets. Japan's 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, has given the yen a profile a low-beta haven currency.

              [GBP, USD]
              The pound is softer today against most currencies after registering the biggest gain on the day yesterday. Cable has dropped back into the lower 1.2900s after yesterday pegging a high at 1.3025. The BoE-calculated effective real sterling exchange rate is down by nearly 4% on the year-to-date, although up by just over 6% from the March-23 low, and is down by almost 11% from levels that were prevailing just ahead of the vote to leave the EU in late June 2016. Talks between the EU and UK are continuing, despite Boris Johnson's political grandstanding on Friday when he said that discussions were over, although having been downgraded by the Downing Street to video conferences (a EU delegation had been set to arrive in London this week). The consensus expectation remains for a limited deal to be produced by mid November and ratified on both sides of the Channel in time for the conclusion of the transition period at year end. A BBC journalist reported that the EU's Barnier is "frustrated" with leaders of coastal EU nations for not yet allowing him to proceed on tackling inevitable compromises on fishing rights. But pundits and market participants appear to be confident a deal will be reached, being, from the perspective of the so-called coastal EU nations, a simple choice between no fishing rights in UK waters under a no deal scenario versus reduced quotas under an agreement. Note that currently more than half of the UK's annual fishing quota is foreign owned. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it -- i.e. the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement -- which was likely his plan all along. We remain bearish on the pound over the medium term. Swapping unfettered access to the EU's single market and customs union in place of a narrow free trade deal with increase trading friction and costs. Note that Wales has announced it will be going into a 17-day full lockdown, and that Moody's downgraded UK sovereign debt to Aa3 from Aa2.

              [USD, CHF]
              The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

              [USD, CAD]
              USD-CAD edged out a high at 1.3202, surpassing Monday's peak by 6 pips. The Canadian dollar tracked oil prices, which have pulled back from the 11-day highs that were seen yesterday. Sharply rising new Covid tests remain a worry to the global outlook given the increasingly stringent countermeasures being implemented in Europe, but also areas in North America. The perceived risk of the upcoming U.S. election being contested is also a concern, although the polling trend in favour of Biden suggests this perceived peril may be receding somewhat. We retain a bearish view of USD-CAD in the bigger picture, though this hinges on getting through the Covid crisis.

              XE Currency Blog

              Topics7434 Posts7479
              By XE Market Analysis October 19, 2020 2:16 pm
                XE Market Analysis's picture
                XE Market Analysis Posts: 5358
                XE Market Analysis: Asia - Oct 19, 2020

                The Dollar softened during the London morning session on Monday, though was generally steady through the N.Y. session, albeit at lower levels. The DXY fell from European highs of 93.76, later basing at 93.22 into the open. The risk-on conditions seen overnight weighed on the safe-haven USD, with only modest upticks seen after Wall Street gave back early gains. Uncertainty over whether or not both sides in D.C. can agree to a fresh stimulus package was behind stock losses. Treasury yields rose, despite equity losses. There was no incoming data to move markets. EUR-USD opened near 1.1790, and subsequently ranged between 1.1773 and 1.1794. USD-JPY started at 105. 30 before peaking at 105.49, later easing under 105.40. USD-CAD drifted from 1.3180 to 1.3150, while GBP-USD, meandered between 1.2968 and 1.3025.

                [EUR, USD]
                EUR-USD gains were capped ahead of the 50-day moving average at 1.1795, peaking at 1.1794 earlier, and since heading back under 1.1780. Risk on conditions overnight allowed the Dollar to pull back, though with Wall Street erasing gains and turning negative on the back of uncertainty over a fresh U.S. fiscal stimulus package, the save-haven Greenback may have some room to move higher again. Uncertainty over Brexit, which will certainly have some impact on the Continent, along with huge spikes in Covid cases in all the larger European countries, will ultimately have impact on the Euro, likely in a negative way.

                [USD, JPY]
                USD-JPY remained mired inside of a narrow trading band, as it has for a week now, as the two safe-haven currencies continue to run into each other. Since last Monday, the pairing has been held to a less than an 80 point trading range. The N.Y. session range was a measly 105.30 to 105.49 on Monday. Better China production and retail sales data, a harbinger for better economic times in Asia as a whole, allowed the Yen to pull back modestly. USD-JPY resistance comes at the 20-day moving average of 105.51, with support at Friday's low at 105.19.

                [GBP, USD]
                Cable rallied through the London morning session, moving from 1.2923 lows to a N.Y. high of 1.3025. The pairing later retreated back to the upper 1.2900s before steadying. Talks between the EU and UK are continuing, despite Boris Johnson's political grandstanding on Friday when he said that discussions were over, although having been downgraded by the Downing Street to video conferences. The consensus expectation remains for a limited deal to be produced by mid November and ratified on both sides of the Channel in time for the conclusion of the transition period at year end. A BBC journalist reported that the EU's Barnier is "frustrated" with leaders of coastal EU nations for not, yet, allowing him to proceed on tackling inevitable compromises on fishing rights. But pundits and market participants, as evidenced by the Pound's rise today, are confident a deal will be reached, being a simple choice between no fishing rights in UK waters under a no deal scenario versus lesser quotas under an agreement. We remain bearish on the pound over the medium term.

                [USD, CHF]
                The Swiss franc has been trading with firming bias, consistently rebounding from bouts of weakness in recent months and driving the EUR-CHF cross to levels under 1.0700 last week for the first time in three months. Markets are anticipating revamped monetary easing measures from the ECB while factoring in Brexit risk. The franc has a proclivity to ascend on the back of its balance of payments position. The SNB stated at its quarterly monetary policy review last month that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market."

                [USD, CAD]
                USD-CAD hit 1.3151 lows in late morning North American trade, down from 1.3198 highs seen overnight. Firmer oil prices, along with general USD softness has put some pressure on the pairing, though with the risk backdrop looking a little shaky now, demand for the safe-haven Greenback could return. USD-CAD support comes at Thursday's 1.3143 low, with resistance at 1.3209, which represents the 50-day moving average. The BoC's Q3 Business Outlook Survey revealed improvement over the summer following the plunge in spring, with firms citing the reduction in COVID-19 restrictions and advent of warmer weather. However, sentiment remains quite weak across all regions, with firm expecting the pace of sales recover to be slow. The Business Outlook Survey indicator improved to -2.2 in Q3 from the record low -6.9 in Q2, consistent with improved but still weak sentiment.

                XE Currency Blog

                Topics7434 Posts7479
                By XE Market Analysis October 19, 2020 8:16 am
                  XE Market Analysis's picture
                  XE Market Analysis Posts: 5358
                  XE Market Analysis: North America - Oct 19, 2020

                  The dollar and yen softened against other currencies as risk-on positioning ensued. Pfizer said it could have a vaccine ready by year-end, and with House Speaker Pelosi saying on Sunday that she was confident that a comprehensive U.S. aid package could be legislated for by the November-3 elections. And while Q3 GDP data out of China disappointed, a slew of September numbers, including industrial production, retail sales and unemployment, beat forecasts and signalling an acceleration in economic activity. S&P 500 E-minis were showing a 0.9% gain as of the early London afternoon. European stock markets were showing much more moderate gains, as an ongoing surge in new Covid cases is leading to increasingly draconian restrictions in many European countries. The USD index (DXY) ebbed to a five-day low at 93.35 as EUR-USD lifted to a five-day high at 1.1768. USD-JPY edged out a four-day high at 105.50 before retreating to near net unchanged levels around 105.35-37. The Australian dollar found a footing after underperforming markedly last week (as a consequence of yuan weakening, trade tensions with China, and risk-off positioning). AUD-USD saw a four-day peak at 0.7116. The New Zealand dollar also posted a four-day high against the U.S. dollar, at 0.6630, after the weekend election returned the incumbent Arden government, with its fiscally expansive bias, with a bigger majority. Elsewhere, the pound rallied above its Friday highs against both the dollar and yen. Cable gained about 0.7% in making a peak at 1.3014, and EUR-GBP fell by nearly 0.4% in making a low at 0.9023. The market saw through Boris Johnson's high jinks on Friday, when he stated that talks with the EU were over. Talks will be continuing this week, with the EU's Barnier and the UK's Frost due to hold a video conference today. The consensus expectation remains for a limited deal to be produced by mid November. On fishing, a principal sticking point, a simple win-win versus lose-lose choice should mean a compromise is found. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it (i.e. remove the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement), which was likely his plan all along.

                  [EUR, USD]
                  The euro has gained against most currencies during the European morning session, with the notable exceptions of the pound, alongside the Australian and New Zealand dollars. A prevailing view that the EU and UK, despite the headline dramatics, are heading for a free trade deal, albeit a limited one, have helped give both the pound and euro an underpinning. Buoyant stock markets have been an added factor in underpinning EUR-USD and EUR-JPY, given the suppressing effect on the dollar and yen as risk premia are adjusted. These considerations have offset the surge in new Covid cases in Europe, which has accelerated in some countries and is leading to increasingly draconian restrictions, which will have consequences on economic activity and maintain the pressure on the ECB for more expansive monetary accommodation. While we are would-be dollar bears, the proclivity for capital being safe harboured in U.S. Treasuries means this is hinged on the global growth outlook establishing a sustainable improving trend, and that in turn may hinge on the world getting through the Covid crisis. The upcoming U.S. elections present risks too, particularly given the perceived chance of the election being contested. Markets are anticipating another U.S. fiscal package, although the timing remains uncertain, and the size and scope of it will be dependent on the election result. Wall Street narratives suggest that U.S. stock markets are pricing in a blue wave on November 3, with Democrats sweeping the House, Senate and Presidency, which would result in many trillions of dollars in fiscal support. On balance, and despite the prevailing upside bias, we remain bearish on EUR-USD at this juncture.

                  [USD, JPY]
                  USD-JPY edged out a four-day high at 105.50, reflecting moderate yen weakness, which was driven by a pick up in risk appetite in global markets on hopes Covid vaccine and U.S. fiscal stimulus. The biggest directional force on the Japanese currency will, however, remain shifting risk premia in global markets. 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 a long-established profile of a low-beta haven currency.

                  [GBP, USD]
                  The pound has rallied above its Friday highs against both the dollar and yen. Cable gained about 0.7% in making a peak at 1.3014, and EUR-GBP fell by nearly 0.4% in making a low at 0.9023. The market saw through Boris Johnson's high jinks on Friday, when he stated that talks with the EU were over. Talks will be continuing this week, with the EU's Barnier and the UK's Frost due to hold a video conference later today. The consensus expectation remains for a limited deal to be produced by mid November. On fishing, a principal sticking point, a simple win-win versus lose-lose choice should mean a compromise is found. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it (i.e. remove the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement), which was likely his plan all along. The expected narrow trade deal will likely the beginning of a evolving process in EU-UK relations. The UK will likely remain closely aligned with EU rules for another year, but may then seek to diverge from them as the UK economy reorientates, which would require revisions to the EU and UK agreement. We remain bearish on the pound over the medium term. Assuming that a no-deal scenario is indeed avoided and that the EU and UK strike a narrowly focused free trade deal, this will still leave the UK's terms of trade in a worsened position, which will have consequences on investment, productivity and economic growth for the foreseeable future.

                  [USD, CHF]
                  The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

                  [USD, CAD]
                  USD-CAD posted a four-day low at 1.3168, extending the retreat from the eleven-day high seen last Thursday at 1.3261. The improvement is risk appetite has both seen the U.S. dollar soften and the Canadian dollar rise, correlating with oil prices, firm. Front-month WTI crude futures posted a 10-day high at $41.44 today, although subsequently reversing lower. Sharply rising new Covid tests remain a worry to the global outlook given the increasingly stringent countermeasures being implemented in Europe, but also areas in North America. The risk of the upcoming U.S. election being contested is also a concern, although the polling trend in favour of Biden suggests this perceived peril may at least be receding. We retain a bearish view of USD-CAD in the bigger picture, though this hinges on getting through the Covid crisis.

                  XE Currency Blog

                  Topics7434 Posts7479
                  By XE Market Analysis October 19, 2020 4:15 am
                    XE Market Analysis's picture
                    XE Market Analysis Posts: 5358
                    XE Market Analysis: Europe - Oct 19, 2020

                    The dollar has traded softer, overall, losing ground the pound and Aussie and Kiwi dollars, though gaining slightly on the euro, which has opened the week with a modest weakening bias as surging new Covid cases push many European countries to more draconian restrictions. Asian stock markets and U.S. index futures rallied after Pfizer said it could have a vaccine ready by year-end, and with House Speaker Pelosi saying on Sunday that she was confident that a comprehensive U.S. aid package could be legislated for by the November-3 elections. EUR-USD dipped to the lower 1.1700s. USD-JPY edged out a four-day high at 105.50, reflecting moderate yen weakness. The New Zealand dollar posted a four-day high against the U.S. dollar at 0.6630 after the weekend election returned the incumbent Arden government, with its fiscally expansive bias, with a bigger majority. The Australian dollar found a footing after underperforming markedly last week (as a consequence of yuan weakening, trade tensions with China, and risk-off positioning). AUD-USD saw a four-day peak at 0.7109. The pound is moderately firmer, with Cable lifting to the mid 1.2900s and EUR-GBP ebbing back under 0.9050. Both the pair and the cross have so far remained within their respective Friday ranges. The market saw through Boris Johnson's high jinks on Friday, when he stated that talks with the EU were over. Talks will be continuing this week, with the EU's Barnier and the UK's Frost due to hold a video conference later today. The consensus expectation remains for a limited deal to be produced by mid November. On fishing, a principal sticking point, a simple win-win versus lose-lose choice should mean a compromise is found. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it (i.e. remove the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement), which was likely his plan all along. The expected narrow trade deal will likely the beginning of a evolving process in EU-UK relations. The UK will likely remain closely aligned with EU rules for another year, but may then seek to diverge from them as the UK economy reorientates.

                    [EUR, USD]
                    EUR-USD dipped to the lower 1.1700s despite the dollar softening against most other currencies. The euro has opened the week with a modest weakening bias as surging new Covid cases push many European countries to more draconian restrictions, which will have consequences on economic activity and maintain the pressure on the ECB for more expansive monetary accommodation. Brexit is a pressing issue. The market saw through Boris Johnson's high jinks on Friday, when he stated that talks with the EU were over. Talks will be continuing this week, with the EU's Barnier and the UK's Frost due to hold a video conference later today. The consensus expectation remains for a limited free trade deal to be produced by mid November, which will mark an erosion in the terms of trade positions of both the UK and EU, more acutely in the case of the former. In the U.S., Pfizer said it could have a vaccine ready by year-end, while House Speaker Pelosi saying on Sunday that she was confident that a comprehensive U.S. aid package could be legislated for by the November-3 elections. We are would-be dollar bears, but given the proclivity for capital being safe harboured in U.S. Treasuries, this is hinged on the global growth outlook establishing a sustainable improving trend, and that in turn is hinged on the world getting through the Covid crisis. The world perhaps may also want to get on the other side of the upcoming U.S. elections, given the concerns of the election being contested. On balance, we remain bearish on EUR-USD at this juncture.

                    [USD, JPY]
                    USD-JPY edged out a four-day high at 105.50, reflecting moderate yen weakness, which was driven by a pick up in risk appetite in global markets on hopes Covid vaccine and U.S. fiscal stimulus. The biggest directional force on the Japanese currency will, however, remain shifting risk premia in global markets. 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 a long-established profile of a low-beta haven currency.

                    [GBP, USD]
                    The pound is moderately firmer, with Cable lifting to the mid 1.2900s and EUR-GBP ebbing back under 0.9050. Both the pair and the cross have so far remained within their respective Friday ranges. The market saw through Boris Johnson's high jinks on Friday, when he stated that talks with the EU were over. Talks will be continuing this week, with the EU's Barnier and the UK's Frost due to hold a video conference later today. The consensus expectation remains for a limited deal to be produced by mid November. On fishing, a principal sticking point, a simple win-win versus lose-lose choice should mean a compromise is found. Regarding Johnson's Internal Market Bill, the expectation is that he will concede by removing the offending passages in it (i.e. remove the parts that would enable the UK government to unilaterally overwrite parts of the Withdrawal Agreement), which was likely his plan all along. The expected narrow trade deal will likely the beginning of a evolving process in EU-UK relations. The UK will likely remain closely aligned with EU rules for another year, but may then seek to diverge from them as the UK economy reorientates. We are bearish on the pound over the medium term. Assuming that a no-deal scenario is indeed avoided and that the EU and UK strike a narrowly focused free trade deal, this will still leave the UK's terms of trade in a worsened position, which will have consequences on investment, productivity and economic growth, at least for the foreseeable future.

                    [USD, CHF]
                    The Swiss franc has been continuing to trade with a firming bias, consistently rebounding from bouts of weakness in recent months. This has seen EUR-CHF repeatedly ebb back from brief forays above 1.0800, and the cross has fallen to the lower 1.0700s in the latest phase as markets anticipate revamped monetary easing measures from the ECB. This along with Brexit risk, which has been weighing on the euro. The franc has a proclivity to ascend on the influence of incoming interest and other domestically owned investment receipts from assets held abroad, alongside net inflows generated by Switzerland's trade surplus. A higher franc has been imparting deflation, which to a degree offsets any loss in export competitiveness that a nominally firmer currency might otherwise entail as there is a high import component in the production of Swiss exports (perpetuating the nominal trend by limiting the decline in the real effective exchange rate). The SNB, nonetheless, explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

                    [USD, CAD]
                    USD-CAD posted a four-day low at 1.3168, extending the retreat from the eleven-day high seen last Thursday at 1.3261. The improvement is risk appetite has both seen the U.S. dollar soften and the Canadian dollar, correlating with oil prices, firm. Front-month WTI crude futures posted a 10-day high at $41.44 today. Sharply rising new Covid tests remain a worry to the global outlook given the increasingly stringent countermeasures being implemented in Europe, but also areas in North America. The risk of the upcoming U.S. election being contested is also a concern, although the polling trend in favour of Biden suggests this perceived peril may at least be receding. We retain a bearish view of USD-CAD in the bigger picture, though this hinges on getting through the Covid crisis.

                    XE Currency Blog

                    Topics7434 Posts7479
                    By XE Market Analysis October 16, 2020 2:13 pm
                      XE Market Analysis's picture
                      XE Market Analysis Posts: 5358
                      XE Market Analysis: Asia - Oct 16, 2020

                      The Dollar was under modest pressure early in the N.Y. session on Friday, which saw the DXY slip from London highs of 93.88, to a low of 93.54 after the open. Risk-on was in vogue again, which weighed on the USD, though sharply higher U.S. retail sales saw a modest reversal higher from there. Other incoming data revealed a weaker industrial print, though a slightly better consumer sentiment print. The retail sales figures, along with positive Covid vaccine news lifted Wall Street. Treasury yields were narrowly mixed. EUR-USD bottomed near 1.1710 early, later climbing modestly to 1.1744. USD-JPY again put in a narrow range between 105.22 and 105.44. USD-CAD fell from 1.3218 to 1.3177, while GBP-USD rallied from 1.2863 to 1.2945, later settling near 1.2920.

                      [EUR, USD]
                      EUR-USD rallied in early N.Y. trade, moving from under 1.1710 into the open, later topping at 1.1746 in relatively quiet end-of-week trade. Wall Street headed higher, which translated into lowered demand for the safe-haven Dollar. Later in the session, the pairing eased back to 1.1715 on London profit taking. On the Covid front, while cases are rising in the U.S., they are rising at an alarming rate across Europe, which could put an end to Europe's nascent economic recovery. As a result, the Euro may remain under some pressure in the coming weeks.

                      [USD, JPY]
                      USD-JPY opened the session at 105.22 lows, later rallying modestly to 105.44 highs. Today marked another day of narrow price action, indeed for the week, the pairing's range has been limited to 105.04 and 105.81. The Dollar and Yen continue to duke it out for the safe-haven title, with both rising against other currency peers in times of risk-off, and falling during periods of risk-on. As a result, USD-JPY has struggled to make much headway in either direction.

                      [GBP, USD]
                      The pound dropped quite sharply Thursday from levels above 1.3000 against the dollar, and edged out a two-day low at 1.2863 into the N.Y. open on Friday. Brexit drama remained at high levels with Johnson saying the UK must prepare for no deal unless there is a fundamental change of approach by the EU. The president of the European Commission von der Leyen subsequently stated that "our negotiation team will go to London next week to intensify these negotiations," which presumably comes with the knowledge of the UK government. Both sides essentially called each others bluff, but neither followed through on their threats. Meanwhile, the Pound hangs on tenterhooks, awaiting the final outcome.

                      [USD, CHF]
                      The Swiss franc eased a bit on Friday, as risk-on conditions returned, and as EUR-USD printed modest gains. The cross touched 1.0730 highs after hitting a three-month lows under 1.0700 on Thursday, as the Euro generally softened and as CHF buying picked up on the back of a risk-off session. The SNB explicitly targets the exchange rate as one of the means to achieve its policy goals. At its quarterly monetary policy review last month, the central bank stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market".

                      [USD, CAD]
                      USD-CAD headed to session lows of 1.3177, down from earlier highs of 1.3218, and overnight highs of 1.3238. The usual suspects are behind the modest CAD strength seen this morning, including some general USD softening, oil prices up near the $41 mark, and a risk-on backdrop. In addition, pre-weekend position squaring is likely in the mix, after USD-CAD rallied from just under 1.3100 to 1.3260 through the week.

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