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By XE Market Analysis May 29, 2020 3:27 pm
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    XE Market Analysis Posts: 5061
    XE Market Analysis: Asia - May 29, 2020

    After falling to two-plus month lows of 97.95 overnight, the DXY recovered to 98.50 through the N.Y. session on Friday. It appeared that broad week and month-end buying was the main driver. For the data, the goods trade deficit widened, while personal income soared 10.5%, on government transfers (PPP). PCE plunged 12.6%, while Chicago PMI and Michigan sentiment dipped lower as well. As has been the case since the pandemic, though was little market reaction to the numbers. EUR-USD fell from two-month highs of 1.1145 after the open, later basing at 1.1081. USD-JPY opened at the lows at 107.09, before rallying to 107.89. USD-CAD topped at 1.3831 from opening levels under 1.715. Cable fell from 1.2394 highs to 1.2292 lows.

    [EUR, USD]
    EUR-USD topped at two-month highs of 1.1145 in early N.Y. trade, up from Asian session lows of 1.1070. The pairing's decisive break over its 200-day moving average (1.1012) saw follow through buying step in overnight. Hopes over the EU's bold budget and stimulus proposals helped to underpin the Euro as well, although the plans face tough negotiations and money is unlikely to flow soon. As the N.Y. session got under way, pre-weekend, and month end flows reversed quickly, which saw the Euro fall back to 1.1081 lows after the London close.

    [USD, JPY]
    USD-JPY recovered from two-week lows of 107.08 seen during the London morning session, bouncing over 107.89 after the London close. Month-end flows into the Dollar helped support through the morning session, though the pairing has run into resistance around 107.80, which marks the 50-day moving average. USD-JPY had been inside a relatively narrow range for over a week, as largely risk-on conditions weighed on both the Dollar and Yen. While still inside of May's trading range, today's bounce back to well-worn levels indicates that range trade may still be in effect.

    [GBP, USD]
    Cable fell through the N.Y. session, along with most other major currencies, largely driven by week and month-end Dollar buying. Cable had rallied through the London session, topping at 1.2394. The pairing later fell back to 1.2292 lows after the London close. Given the pandemic, and Brexit issues on trade going forward, we continue to see limited potential for a sustained recovery in Sterling.

    [USD, CHF]
    EUR-CHF eased back from near four-month highs of 1.0731, as risk-taking levels faded into month-end. The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB.

    [USD, CAD]
    USD-CAD hit lows of 1.3713 in early North American trade, levels last seen on March 12. The move came on the back of general USD weakness, which saw the DXY fall to better than two-month lows of 97.95. Since then, ugly Canada Q1 GDP, along with broad USD buying saw the pairing rally back to 1.3831 highs, despite WTI crude climbing, and reclaiming the $34 handle.

    XE Currency Blog

    Topics7137 Posts7182
    By XE Market Analysis May 29, 2020 6:57 am
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      XE Market Analysis Posts: 5061
      XE Market Analysis: North America - May 29, 2020

      The yen has strengthened amid a sputtering price action in global equity markets, while the dollar, despite this backdrop, underperformed, including against commodity currencies. USD-JPY fell nearly 0.5% in posting an 11-day low at 107.08. EUR-JPY ebbed by about 0.3%, retracing around a half of yesterday's rally in making a low at 118.18, which had produced a two-month high at 119.42. AUD-JPY also traded softer, though remained shy of its low from yesterday. The narrow trade-weighted USD index, meanwhile, fell to its lowest level since March 17th, at 98.26, which nearly unwinds the premium the dollar has been trading with since the pandemic crisis erupted. EUR-USD concurrently pegged a two-month high at 1.1137, extending gains after breaking above its 200-day moving average yesterday, and Cable made a three-day high at 1.2358. In the stock market realm, S&P 500 futures were showing a 0.3% loss, as of the early European afternoon, while the pan-Europe STOXX 600 was down 0.8%. Most Asia-Pacific markets finished lower, though not by a large magnitude. The Hang Seng underperformed with a 0.7% closing loss, while the Shanghai Composite managed a 0.2% gain. Concerns about the U.S.-China, West-China stand-off are mounting following Beijing's implementation of its Hong Kong security law yesterday. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Meanwhile, a senior Chinese general spoke today of both "peaceful and military options" to resolve the "Taiwan problem." A raft of month-end date releases out of Japan and Europe had little impact. On the coronavirus front, a spike in confirmed infections in South Korea has led to a reintroduction of lockdown measures.

      [EUR, USD]
      EUR-USD pegged a fresh two-month high at 1.1137, extending gains after breaking above its 200-day moving average yesterday. The gains are concomitant with the narrow trade-weighted USD index falling to its lowest level since March 17th, at 98.09, which nearly unwinds the premium the dollar has been trading with since the pandemic crisis erupted. There is a risk that the dollar rebounds on a safe-haven bid. Concerns about the U.S.-China, and more broadly the West-China, stand-off are mounting following Beijing's implementation of its Hong Kong security law. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move, which breaks the 50-year "one country, two systems" agreement China made with the UK in 1997. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Beijing is also upping the ante with its long-held desire to reunify Taiwan with the mainland, with the head of China's Taiwan Affairs Office warning today that attempts by foreign forces to interfere in China's reunification "will fail." EUR-USD is so far continuing to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside.

      [USD, JPY]
      The yen has strengthened as risk-off sentiment took a grip, while the dollar, despite this backdrop, underperformed. USD-JPY fell nearly 0.5% in posting an 11-day low at 107.08. EUR-JPY ebbed by about 0.3%, retracing around a half of yesterday's rally in making a low at 118.88, which had produced a two-month high at 119.42. AUD-JPY also traded softer, though remained shy of its low from yesterday. In the stock market realm, S&P 500 futures are showing a near 0.5% loss, as of the early London AM session, while most Asia-Pacific markets have put in a sputtering price action. Concerns about the U.S.-China, and more broadly the West-China, stand-off are mounting following Beijing's implementation of its Hong Kong security law. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move, which breaks the 50-year "one country, two systems" agreement China made with the UK in 1997. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Meanwhile, a senior Chinese general spoke today of both "peaceful and military options" to resolve the "Taiwan problem," and the head of China's Taiwan Affairs Office warned that attempts by foreign forces to interfere in China's reunification "will fail." A raft of month-end date releases out of Japan had little impact. On the coronavirus front, a spike in confirmed infections in South Korea has led to a reintroduction of lockdown measures. Overall, we retain a bearish view of USD-JPY.

      [GBP, USD]
      The pound's current proclivity to correlate with stock markets has been on display over the last day, with Cable yesterday rallying concomitantly with global stock markets to posting a 15-day high at 1.2364. Only the Australian and New Zealand dollars outperformed the UK currency out of the main currencies. The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and again during current pandemic crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. The gain over the last day has pushed the pound back toward the lower reaches of a broad consolidation range that's been enduring since April. Research out of Lloyds bank in London suggests that, with the acute dislocations since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. Its Cross-Asset Risk Index has fallen from a positive correlation of 0.85, at the high, to 0.61 now. We continue to anticipate limit potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

      [USD, CHF]
      The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

      [USD, CAD]
      USD-CAD has remained in a consolidation of recent losses, which on Wednesday left an 11-week low at 1.3725. At the same time, oil prices have been consolidating recent gains, which has taken some of the wind out of the Canadian dollar's sails. The Canadian currency, likely other commodity currencies and risk assets, is also back to levels prevailing before the global market panic of mid March. This should give market participants pause for thought, as reopening economies are only doing so only partially, and there is a risk for a second wave of coronavirus infections as social and economic re-liberalization unfolds (witness the spike in cases in South Korea, which has led to a re-introduction of lockdown measures). As for oil prices, front-month WTI crude futures have tipped lower after pegging an 11-week high on Tuesday at $34.81. The outlook for oil is still bullish. OPEC+ adherence to planned production cuts is reportedly high, although Russia is desiring to increase output in July. U.S. output continues to fall amid the forced closure of hundreds of shale wells, with current pricing making such operations unviable. On the demand side, China and India are said to be increasing imports, while fuel use in general has been on the rise as economies emerge from lock down. Bigger picture, as long as the nascent recovery isn't scuttled by a second wave of COVID-19 infections, oil price risk going forward would appear to be to the upside.

      XE Currency Blog

      Topics7137 Posts7182
      By XE Market Analysis May 29, 2020 3:57 am
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        XE Market Analysis Posts: 5061
        XE Market Analysis: Europe - May 29, 2020

        The yen has strengthened as risk-off sentiment took a grip, while the dollar, despite this backdrop, underperformed. USD-JPY fell nearly 0.5% in posting an 11-day low at 107.08. EUR-JPY ebbed by about 0.3%, retracing around a half of yesterday's rally in making a low at 118.18, which had produced a two-month high at 119.42. AUD-JPY also traded softer, though remained shy of its low from yesterday. The narrow trade-weighted USD index, meanwhile, fell to its lowest level since March 17th, at 98.26, which nearly unwinds the premium the dollar has been trading with since the pandemic crisis erupted. EUR-USD concurrently pegged a two-month high at 1.1111, extending gains after breaking above its 200-day moving average yesterday, and Cable made a three-day high at 1.2358. In the stock market realm, S&P 500 futures are showing a near 0.5% loss, as of the early London AM session, while most Asia-Pacific markets have put in a sputtering price action. Concerns about the U.S.-China, and more broadly the West-China, stand-off are mounting following Beijing's implementation of its Hong Kong security law. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move, which breaks the 50-year "one country, two systems" agreement China made with the UK in 1997. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Meanwhile, a senior Chinese general spoke today of both "peaceful and military options" to resolve the "Taiwan problem," and the head of China's Taiwan Affairs Office warned that attempts by foreign forces to interfere in China's reunification "will fail." A raft of month-end date releases out of Japan had little impact. On the coronavirus front, a spike in confirmed infections in South Korea has led to a reintroduction of lockdown measures.

        [EUR, USD]
        EUR-USD pegged a two-month high at 1.1111, extending gains after breaking above its 200-day moving average yesterday. The gains was concomitant with the narrow trade-weighted USD index falling to its lowest level since March 17th, at 98.26, which nearly unwinds the premium the dollar has been trading with since the pandemic crisis erupted. The is a risk that the dollar rebounds on a safe-haven bid. Concerns about the U.S.-China, and more broadly the West-China, stand-off are mounting following Beijing's implementation of its Hong Kong security law. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move, which breaks the 50-year "one country, two systems" agreement China made with the UK in 1997. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Beijing is also upping the ante with its long-held desire to reunify Taiwan with the mainland, with the head of China's Taiwan Affairs Office warning today that attempts by foreign forces to interfere in China's reunification "will fail." EUR-USD is so far continuing to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside.

        [USD, JPY]
        The yen has strengthened as risk-off sentiment took a grip, while the dollar, despite this backdrop, underperformed. USD-JPY fell nearly 0.5% in posting an 11-day low at 107.08. EUR-JPY ebbed by about 0.3%, retracing around a half of yesterday's rally in making a low at 118.18, which had produced a two-month high at 119.42. AUD-JPY also traded softer, though remained shy of its low from yesterday. In the stock market realm, S&P 500 futures are showing a near 0.5% loss, as of the early London AM session, while most Asia-Pacific markets have put in a sputtering price action. Concerns about the U.S.-China, and more broadly the West-China, stand-off are mounting following Beijing's implementation of its Hong Kong security law. President Trump will be giving a news conference later today on the U.S. response to China's democracy-quashing move, which breaks the 50-year "one country, two systems" agreement China made with the UK in 1997. He is expected to revoke Hong Kong's "special status" (which will have far reaching implications on the territory's status a global financial hub) and outline sanctions, among other measures. Meanwhile, a senior Chinese general spoke today of both "peaceful and military options" to resolve the "Taiwan problem," and the head of China's Taiwan Affairs Office warned that attempts by foreign forces to interfere in China's reunification "will fail." A raft of month-end date releases out of Japan had little impact. On the coronavirus front, a spike in confirmed infections in South Korea has led to a reintroduction of lockdown measures. Overall, we retain a bearish view of USD-JPY.

        [GBP, USD]
        Cable made a three-day high at 1.2358, extending a recovery from Wednesday's low at 1.2205. Tuesday's 16-day high is at 1.2364. The pound's pandemic-era proclivity to correlate with stock markets has been on display so far this week. The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and has appeared again during this crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. We continue to anticipate limited potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

        [USD, CHF]
        The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

        [USD, CAD]
        USD-CAD has remained in a consolidation of recent losses, which on Wednesday left an 11-week low at 1.3725. At the same time, oil prices have been consolidating recent gains, which has taken some of the wind out of the Canadian dollar's sails. The Canadian currency, likely other commodity currencies and risk assets, is also back to levels prevailing before the global market panic of mid March. This should give market participants pause for thought, as reopening economies are only doing so only partially, and there is a risk for a second wave of coronavirus infections as social and economic re-liberalization unfolds (witness the spike in cases in South Korea, which has led to a re-introduction of lockdown measures). As for oil prices, front-month WTI crude futures have tipped lower after pegging an 11-week high on Tuesday at $34.81. The outlook for oil is still bullish. OPEC+ adherence to planned production cuts is reportedly high, although Russia is desiring to increase output in July. U.S. output continues to fall amid the forced closure of hundreds of shale wells, with current pricing making such operations unviable. On the demand side, China and India are said to be increasing imports, while fuel use in general has been on the rise as economies emerge from lock down. Bigger picture, as long as the nascent recovery isn't scuttled by a second wave of COVID-19 infections, oil price risk going forward would appear to be to the upside.

        XE Currency Blog

        Topics7137 Posts7182
        By XE Market Analysis May 28, 2020 2:56 pm
          XE Market Analysis's picture
          XE Market Analysis Posts: 5061
          XE Market Analysis: Asia - May 28, 2020

          The Dollar fell for the third straight session, leaving the DXY at two-month lows of 98.37, down from 99.97 highs seen on Monday. An improving outlook for reopening the economy amid general risk-on conditions, has continued to see safe-haven USD positions unwind. Wall Street was higher, with Treasury yields a bit lower on the back of U.S./China tensions. Incoming data was horrible, though largely in-line with expectations, with the modest drop in jobless claims appearing to help equity market sentiment. EUR-USD ran up to two-month highs of 1.1090 from opening lows of 1.1010. USD-JPY was range bound, slipping from opening highs of 107.82 to a low of 107.57. USD-CAD was choppy between 1.3785 and 1.3744. Cable meanwhile rallied to 1.2343 after the London close from opening lows of 1.2255.

          [EUR, USD]
          EUR-USD rose steadily through the N.Y. open, printing fresh two-month highs of 1.1090 after the London close, and up from 1.1010 at the open. The pairing traded on either side of its 200-day moving average (1.1012) overnight, before breaking higher this morning. Risk-on conditions have weighed on the Dollar again on Thursday, as U.S. and European stocks hold on to gains. Aside from USD weakness, Euro strength has been a factor, as signs that a deal on the EU recovery fund can be agreed to. This said, negotiations are likely to be contentious, and it may be a matter of weeks before stimulus is sent out the door.

          [USD, JPY]
          USD-JPY failed to break above the 108.00 level for the third day running, peaking at 107.90 in Asia, then making its way from early N.Y. highs of 107.82, to late morning lows of 107.57. The 50-day moving average at 107.85 has acted as a soft cap to the pairing for more than a week. While risk-on conditions through much of this week have limited the pairing's downside, unwinding of safe-haven USD positions, which has been in favor for a week now, has limited USD-JPY gains, offsetting the risk-sensitive Yen's downside. As a result, the pairing has been stuck inside a 107.32 to 107.96 trading range for better than a week.

          [GBP, USD]
          Cable firmed to 1.2343 highs after the London close, extending a recovery from yesterday's low at 1.2205. Risk-on conditions, along with a generally weaker Dollar have seen the Pound with a bid tone this week, though Cable was unable to surpass Wednesday's 1.2355 high. Cable looks to be in a consolidation mode, after printing two-session of lower daily highs, and higher daily lows. In addition, the pairing has traded either side of both its 20- and 50-day moving averages Since Tuesday, another indication of consolidation. Cable has continued to correlate with general risk levels, so, should equities continue to advance, Cable risk would appear to be to the upside.

          [USD, CHF]
          EUR-CHF remained firm on Thursday, after rallying to near three-month highs of 1.0698 on Wednesday. Another risk-on session kept a floor under the cross. The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB.

          [USD, CAD]
          USD-CAD found support above 1.3730 overnight, failing to break below the 11-week low of 1.3725 seen on Wednesday. The pairing topped at 1.3789 into the North American open, and has since ranged between 1.3785 and 1.3744. The pairing was lifted from 1.3745 to over 1.3780 following the large WTI crude inventory build, though as oil later rallied, USD-CAD headed back toward its low. Overall, a choppy inside day, as prices consolidate after the sharp USD-CAD drop on Tuesday, and ahead of Friday's Canada GDP report.

          XE Currency Blog

          Topics7137 Posts7182
          By XE Market Analysis May 28, 2020 6:56 am
            XE Market Analysis's picture
            XE Market Analysis Posts: 5061
            XE Market Analysis: North America - May 28, 2020

            The dollar and yen have remained weak, albeit in the context of narrow ranges so far today. Global markets remain, overall, in risk-on mood, though geopolitical tensions about the Hong Kong issue saw the Hang Seng and main Chinese stock indices decline. China's parliament did the expected and ratified the Hong Kong security law, and putting China and the U.S., and more broadly the West, on a collision course. The Nikkei 225 has been the star performer in the equity world, closing up 2.3% at its best level since February 27th, breaking above its 200-day moving average on route. The index is now up Up 34% from the lows in March. The cocktail of reopening economies and massive global stimulus is pumping buoyancy into global stock markets, which in many cases, including the S&P 500, have recouped to pre-pandemic levels. The narrow trade-weighted USD index has settled near the 99.0 level, above the 24-day low seen yesterday at 98.72. EUR-USD edged out a two-month high at 1.1035. Aside from the softer dollar, the euro itself has been buoyed by increasing signs that a deal on the EU recovery fund is nearing fruition. EUR-JPY printed a seven-week high, at 118.96, while EUR-GBP is within a few pips of two-month high territory. Elsewhere, the Aussie dollar has consolidated today after dropping sharply from the 11-week high that was pegged at 0.6680 against the U.S. dollar. The recent weakening in China's yuan has been mooted in some narratives as having sparked profit taking in the Australian currency. There is also conjecture, which could apply equally to stock markets, that, having returned to pre-crisis valuations, there is less reason to be bullish given that economies are not fully reopening. The U.S.-China stand-off is a wildcard risk, too.

            [EUR, USD]
            EUR-USD edged out a two-month high at 1.1035. Aside from the softer dollar, the euro itself has been buoyed by increasing signs that a deal on the EU recovery fund is nearing fruition. EUR-JPY printed a seven-week high, at 118.96, while EUR-GBP is within a few pips of two-month high territory. In data, there were no surprises. May Eurozone ESI economic sentiment indicator showed an about as-expected improvement after the dismal reading for April, while German state inflation data affirmed a disinflationary picture. The U.S. calendar today features the second estimate for Q1 GDP, along with April durable orders and weekly jobless claims, the latter of which is seen rising another 2.1 mln, from the 2.438 mln last week. EUR-USD continues to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. Despite the fresh highs today, we still expect the pair to lack sustained directional bias for now. There is little divergence in central bank policy currently, with both the ECB and the Fed pursuing aggressively accommodative policy, with both Europe and the U.S. facing significant economic headwinds from virus-containing lockdown measures. Both are amid the early stages or reopening from lockdowns.

            [USD, JPY]
            The yen has remained soft as global markets remain in overall bullish mood, though geopolitical tensions about the Hong Kong issue have seen the Hang Seng and main Chinese stock indices decline. The Nikkei 225 closed up 2.3% at its best level since February 27th, breaking above its 200-day moving average on route. The index is now up Up 34% from the lows in March. The cocktail of reopening economies and massive global stimulus is pumping buoyancy into global stock markets, which in many cases, such as in Japan, have recouped to pre-pandemic levels. This backdrop has continued to see an abatement in the Japanese currency's safe haven premium. There are risks ahead, however, which could reignite demand for the yen. Not least is the Hong Kong situation, with China's parliament today implementing its controversial security law, which will effective quash democracy in Hong Kong, with the U.S. and other Western nations set to take measures. The U.S. will likely strip Hong Kong of its "special status", among other measures, which would significantly weaken the city's status as a world financial centre. Another risk to the outlook, is the risk of a second wave of coronavirus infections as social and economic reopenings proceed. A case in point is Alabama in the U.S., where there has been a sharp spike in new confirmed coronavirus.

            [GBP, USD]
            The pound's current proclivity to correlate with stock markets has been on display over the last day, with Cable yesterday rallying concomitantly with global stock markets to posting a 15-day high at 1.2364. Only the Australian and New Zealand dollars outperformed the UK currency out of the main currencies. The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and again during current pandemic crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. The gain over the last day has pushed the pound back toward the lower reaches of a broad consolidation range that's been enduring since April. Research out of Lloyds bank in London suggests that, with the acute dislocations since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. Its Cross-Asset Risk Index has fallen from a positive correlation of 0.85, at the high, to 0.61 now. We continue to anticipate limit potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

            [USD, CHF]
            The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

            [USD, CAD]
            USD-CAD has remained heavy after yesterday printing its lowest level since March 12th, at 1.3725. The Canadian dollar, likely other commodity currencies and risk assets, are now back to levels prevailing before the global market panic of mid March. This should give market participants pause for thought, as reopening economies are only doing so partially, and there is a risk for a second wave of coronavirus infections as social and economic re-liberalization unfolds (witness the sharp spike in cases in the state of Alabama in the U.S.). As for oil price, which is a key influencer of the Canadian dollar, front-month WTI crude futures have tipped lower by over 3% today, posting a six-day low at $31.55, extending the correction from the 11-week high that was seen on Tuesday at $34.81. The outlook for oil is still bullish. OPEC+ adherence to planned production cuts is reportedly high, though Russia is disiring to increase output in July. U.S. output continues to fall amid the forced closure of hundreds of shale wells, with current pricing making such operations unviable. On the demand side, China and India are said to be increasing imports, while fuel use in general has been on the rise as economies emerge from lock down. Bigger picture, as long as the nascent recovery isn't scuttled by a second wave of COVID-19 infections, oil price risk going forward would appear to be to the upside.

            XE Currency Blog

            Topics7137 Posts7182
            By XE Market Analysis May 28, 2020 3:55 am
              XE Market Analysis's picture
              XE Market Analysis Posts: 5061
              XE Market Analysis: Europe - May 28, 2020

              The dollar and yen have remained weak, albeit in the context of narrow ranges so far today. Global markets remain, overall, in risk-on mood, though geopolitical tensions about the Hong Kong issue have seen the Hang Seng and main Chinese stock indices decline. The Nikkei 225 closed up 2.3% at its best level since February 27th, breaking above its 200-day moving average on route. The index is now up Up 34% from the lows in March. The cocktail of reopening economies and massive global stimulus is pumping buoyancy into global stock markets, which in many cases, including the S&P 500, have recouped to pre-pandemic levels. The narrow trade-weighted USD index has settled in the upper 98.0s, above the 24-day low seen yesterday at 98.72. EUR-USD edged out a two-month high at 1.1035. Aside from the softer dollar, the euro itself has been buoyed by increasing signs that a deal on the EU recovery fund is nearing fruition. EUR-JPY printed a seven-week high, at 118.96, while EUR-GBP is within a few pips of two-month high territory. Elsewhere, the Aussie dollar has consolidated today after dropping sharply from the 11-week high that was pegged at 0.6680 against the U.S. dollar. The weakening in China's yuan has been mooted in some narratives as having sparked profit taking in the Australian currency. There is also conjecture, which could apply equally to stock markets, that, having returned to pre-crisis valuations, there is less reason to be bullish. While economies are reopening, they are not fully reopening for the most part, and it's clear that a full recovery, back to pre-pandemic/lockdown levels, isn't likely anytime soon. The U.S.-China stand-off is a wildcard risk, too. AUD-USD rallied by over 21% from its March-19th low at 0.5507 through to yesterday's high.

              [EUR, USD]
              EUR-USD edged out a two-month high at 1.1035. Aside from the softer dollar, the euro itself has been buoyed by increasing signs that a deal on the EU recovery fund is nearing fruition. EUR-JPY printed a seven-week high, at 118.96, while EUR-GBP is within a few pips of two-month high territory. EUR-USD continues to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. Despite the fresh highs today, we still expect the pair to lack sustained directional bias for now. There is little divergence in central bank policy currently, with both the ECB and the Fed pursuing aggressively accommodative policy, with both Europe and the U.S. facing significant economic headwinds from virus-containing lockdown measures. Both are amid the early stages or reopening from lockdowns.

              [USD, JPY]
              The yen has remained on a softening tack as global markets remain in overall bullish mood, though geopolitical tensions about the Hong Kong issue have seen the Hang Seng and main Chinese stock indices decline. The Nikkei 225 closed up 2.3% at its best level since February 27th, breaking above its 200-day moving average on route. The index is now up Up 34% from the lows in March. The cocktail of reopening economies and massive global stimulus is pumping buoyancy into global stock markets, which in many cases, such as in Japan, have recouped to pre-pandemic levels. This backdrop has continued to see an abatement in the Japanese currency's safe haven premium. There are risks ahead. Not least is the Hong Kong situation, with China expected to implement its controversial security law, which will effective quash democracy in Hong Kong, and the U.S. and other Western nations set to take measures. The U.S. will likely strip Hong Kong of its "special status", which would significantly weaken the city's status as a world financial centre. Another risk to the rosy outlook, is the risk of a second wave of coronavirus infections as social and economic reopenings proceed. A case in point is Alabama in the U.S., where there has been a sharp spike in new confirmed coronavirus.

              [GBP, USD]
              The pound's pandemic-era proclivity to correlate with stock markets has been on display so far this week The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and again during this crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. The gain over the last day has pushed the pound back toward the lower reaches of a broad consolidation range that's been enduring since April. Research out of Lloyds bank in London this week suggested that, with the acute dislocations since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. Its Cross-Asset Risk Index has fallen from a positive correlation of 0.85, at the high, to 0.61 now. We continue to anticipate limit potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

              [USD, CHF]
              The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

              [USD, CAD]
              USD-CAD has remained heavy after yesterday printing its lowest level since March 12th, at 1.3725. The Canadian dollar, likely other commodity currencies and risk assets, are now back to levels prevailing before the global market panic of mid March. This should give market participants pause for thought, as reopening economies are only doing so partially, and there is a risk for a second wave of coronavirus infections as social and economic re-liberalization unfolds (witness the sharp spike in cases in the state of Alabama in the U.S.). As for oil price, which is a key influencer of the Canadian dollar, front-month WTI crude futures have tipped lower by over 3% today, posting a six-day low at $31.55, extending the correction from the 11-week high that was seen on Tuesday at $34.81. The outlook for oil is still bullish. OPEC+ adherence to planned production cuts is reportedly high, though Russia is disiring to increase output in July. U.S. output continues to fall amid the forced closure of hundreds of shale wells, with current pricing making such operations unviable. On the demand side, China and India are said to be increasing imports, while fuel use in general has been on the rise as economies emerge from lock down. Bigger picture, as long as the nascent recovery isn't scuttled by a second wave of COVID-19 infections, oil price risk going forward would appear to be to the upside.

              XE Currency Blog

              Topics7137 Posts7182
              By XE Market Analysis May 27, 2020 2:55 pm
                XE Market Analysis's picture
                XE Market Analysis Posts: 5061
                XE Market Analysis: Asia - May 27, 2020

                The DXY headed lower into the N.Y. open on Wednesday, weighed down by risk-on conditions, which took the bid out of the safe-haven Dollar. Buyers stepped back in after the open, as Wall Street turned mixed. There was little in the way of data, though the Richmond Fed index, while still in negative territory, perked up more than expected. Thursday's data picks up with revised GDP, jobless claims, and factory orders. EUR-USD headed back below its two-month highs of 1.1030, later bottoming under 1.0970. USD-JPY turned lower after attempting to test the 108.00 level, falling back to 107.64 in afternoon trade. USD-CAD bounced from 11-week lows at 1.3725 to highs of 1.3822 as oil prices stumbled. GBP-USD was heavy through the session, basing at 1.2205 from opening highs of 1.2314.

                [EUR, USD]
                EUR-USD rallied to near two-month highs of 1.1030, briefly crossing above the 200-day moving average at 1.1012. The rally from London lows of 1.0934 came as risk appetite perked up on reports the EU is moving closer to finalizing a massive recovery fund, along with hopes for extra ECB stimulus. the pairing has struggled over the 1.1000 mark since the start of April, and has not settled above its 200-day moving average since March 27. A close above the level will be taken as a bullish sign, though currently, EUR-USD is back under 1.1000 mark.

                [USD, JPY]
                USD-JPY was capped ahead of the 108.00 mark, though managed a six-session high of 107.94 in early N.Y. trade before slipping back to 107.64. The pairing had come from overnight lows of 107.36. Psychological resistance at 108.00, along with the 50-day moving average at 107.92, and Wall Street pulling back from best levels, appeared to have prompted a light bout of profit taking. The overnight low is the next support level.

                [GBP, USD]
                Cable recorded an inside day on Wednesday, falling from London morning highs of 1.2354 through the N.Y. morning, and eventually basing at 1.2205.Given the late start the U.K. got on battling the virus, the economic outlook looks to be behind some of the other big countries, which for now, should keep the Pound from making its way much higher. Support now is at Tuesday's 1.2179 low, with resistance at 1.2364, Tuesday's high.

                [USD, CHF]
                EUR-CHF rallied to near three-month highs of 1.0698 before fading to near 1.0630. The risk backdrop deteriorated some during the N.Y. session putting pressure on the cross. The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB.

                [USD, CAD]
                USD-CAD bounced from 11-week lows of 1.3725 seen ahead of the open, since peaking at 1.3822. The move higher came on the back of reports that Russia seeks to ease current production cuts in July, which weighed on oil prices, taking WTI crude to $32.20 lows from $33.80. With economies beginning to reopen, oil demand is set to increase, which should keep WTI prices generally supported, keeping downward pressure on USD-CAD overall.

                XE Currency Blog

                Topics7137 Posts7182
                By XE Market Analysis May 27, 2020 7:24 am
                  XE Market Analysis's picture
                  XE Market Analysis Posts: 5061
                  XE Market Analysis: North America - May 27, 2020

                  The dollar dropped back as risk appetite picked up on news that Japan and the EU are moving closer to finalizing massive recovery funds, along with hopes for extra ECB stimulus. The narrow trade-weighted USD index has tumbled back under 99.00 and printed a 24-day low at 98.72. The euro rose against most currencies, while holding its own versus the outperforming commodity currencies, underpinned by news that the European Commission is reportedly outlining a compromise proposal that aims to satisfy both the German-Franco position and that the so-called "frugal four" (Austria, Sweden, Denmark and the Netherlands). EUR-USD broke above 1.1000, posting a high so far at 1.1030, which is the loftiest level seen since April 1st. A low was left at 1.0935. Amid this, the yen took a rotation lower as stock markets in Europe rallied after a sputtering Asia-Pacific session (when U.S.-China tensions weighed). S&P 500 futures were showing a gain of 1.3%, as of the early PM session in Europe, more than doubling the gain seen by the cash index yesterday on Wall Street. USD-JPY rallied to a 107.74 peak, gaining from the intraday at 107.36, which marked a nine-day nadir. USD-CAD dropped to an 11-week low at 1.3735, partly on broader U.S. dollar weakness and partly on an outperformance among the commodity currencies. Front-month WTI oil futures are modestly softer today after yesterday hitting an 11-week high at $34.81. The IEA said that the pandemic crisis is causing the biggest fall in global energy investment in history. The biggest gainer so far today out of the main dollar pairings and cross rates was AUD-JPY, which rallied by over 0.7%.

                  [EUR, USD]
                  The euro has lifted on EU recovery fund news, with the European Commission reportedly outlining a compromise proposal that aims to satisfy both the German-Franco position and that the so-called "frugal four" (Austria, Sweden, Denmark and the Netherlands). This has helped give European stock markets a boost, which in turn has led to the dollar losing some of its safe haven premium, in turn giving EUR-USD a further underpinning. S&P 500 futures are showing a gain of 1.3%, more than doubling the gain seen by the cash index yesterday on Wall Street. EUR-USD has rallied and broken above 1.1000, posting a high so far at 1.1030, which is the loftiest level seen since April 1st. A low was left at 1.0935. The euro is up against other currencies, too, showing respective 0.3% and 0.5% advances versus the pound and yen, for instance. At the same time, the narrow trade-weighted USD index has tumbled back under 99.00 and is threatening the 24-day low that was seen yesterday at 98.90. EUR-USD continues to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. Despite the fresh highs today, we still expect the pair to lack sustained directional bias for now. There is little divergence in central bank policy currently, with both the ECB and the Fed pursuing aggressively accommodative policy, with both Europe and the U.S. facing significant economic headwinds from virus-containing lockdown measures. Both are amid the early stages or reopening from lockdowns.

                  [USD, JPY]
                  The yen has taken a rotation lower as stock markets in Europe rallied, after a sputtering Asia-Pacific session (due to U.S.-China tensions). S&P 500 futures were showing a gain of 1.3%, as of the early PM session in Europe, more than doubling the gain seen by the cash index yesterday on Wall Street. News that the European Commission is working on a compromise EU recovery fund injected some positive sentiment into markets. This in turn has led markets to ratchet back the Japanese currency's safe haven premium. USD-JPY consequently rallied to a 107.74 peak, gaining from the intraday at 107.36, which marked a nine-day nadir. Bigger picture, we retain an overall bearish view of the pairing, with both the coronavirus pandemic and Hong Kong issue escalating U.S.-China, and more broadly West-China, relations. There is also a risk that markets are over-anticipating the scope for a full recovery from reopening economies, especially given the possibility for a second-wave of infections. This could return demand of the yen as a safe haven. Regarding Hong Kong, while pro-democracy protests continued in Hong Kong's central business district, reports came in that Beijing has expanded the scope of its Hong Kong security law to cover organisations as well as individuals. It will go before the Chinese parliament this week where it's expected to be ratified into law. The U.S. has threatened counter measures if the law comes into effect, and the EU has signalled it will be giving a "robust" message to China on the issue.

                  [GBP, USD]
                  The pound's current proclivity to correlate with stock markets has been on display over the last day, with Cable yesterday rallying concomitantly with global stock markets to posting a 15-day high at 1.2364. Only the Australian and New Zealand dollars outperformed the UK currency out of the main currencies. The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and again during current pandemic crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. The gain over the last day has pushed the pound back toward the lower reaches of a broad consolidation range that's been enduring since April. Research out of Lloyds bank in London suggests that, with the acute dislocations since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. Its Cross-Asset Risk Index has fallen from a positive correlation of 0.85, at the high, to 0.61 now. We continue to anticipate limit potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

                  [USD, CHF]
                  The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

                  [USD, CAD]
                  USD-CAD traded a narrow range in the upper 1.37s, above yesterday's 10-week low at 1.3755. The oil-correlating currency has been tracking the ebb-and-flow of crude markets. Front-month WTI oil prices are softer today after yesterday hitting an 11-week high at $34.81. The IEA said that the pandemic crisis is causing the biggest fall in global energy investment in history. An FT on a report at the weekend detailed a sharp drop in U.S. oil output, with further declines expected later in 2020, with many oil mining operations there having been rendered unviable at prevailing prices. This chimes with last Friday's weekly Baker-Hughes rig count, which revealed another 21 oil rigs were shuttered in the U.S., to bring the the tally to 237 after what is now the 10th straight week of closures. Recent dips in oil inventories have also illustrated shifting fundamentals, with reopening economies around the world stimulating more demand, just as supply continues to ebb. Good reason to be bullish of the Canadian dollar.

                  XE Currency Blog

                  Topics7137 Posts7182
                  By XE Market Analysis May 27, 2020 4:24 am
                    XE Market Analysis's picture
                    XE Market Analysis Posts: 5061
                    XE Market Analysis: Europe - May 27, 2020

                    The dollar has picked up moderately amid a backdrop of geopolitical risk. While pro-democracy protests continued in Hong Kong's central business district, reports came in that Beijing has expanded the scope of its Hong Kong security law to cover organisations as well as individuals. It will go before the Chinese parliament this week where it's expected to be ratified into law. The U.S. has threatened counter measures if the law comes into effect, and the EU has signalled it will be giving a "robust" message to China on the issue. The Hang Seng and main Chinese equity indices underperformed, with losses of 0.9% and 0.3% respectively. Other markets in Asia-Pacific mostly fared better, buoyed by reopening economics and positive developments on the vaccine/treatment front with regard the Covid-19 coronavirus. Japan's Nikkei closed with a 0.7% gain, though both South Korea's KOPSI and Australia's ASX traded flat. The S&P 500 closed on Wall Street yesterday with a 1.2% gain, and futures of the index are up over 0.5%, though off its highs. In the forex realm, the narrow trade-weighted USD index inched up to a high of 99.21, up from yesterday's 24-day low at 98.90. EUR-USD concurrently ebbed to a 1.0951 low, down from yesterday's six-day high at 1.0997. USD-JPY edged out a five-day low at 107.36, which marked the base of a sub 30-pip range. The commodity currencies traded with with little direction, consolidating recent gains. AUD-USD settled in the mid 0.6600s, below the 11-week high that was clocked yesterday at 0.6676. USD-CAD traded a narrow range in the upper 1.37s, above yesterday's 10-week low at 1.3755. Front-month WTI oil prices are softer today after yesterday hitting an 11-week high at $34.81. The IEA said that the pandemic crisis is causing the biggest fall in global energy investment in history.

                    [EUR, USD]
                    EUR-USD ebbed to a 1.0951 low, down from yesterday's six-day high at 1.0997, with direction was again be driven by a broader move in the U.S. currency. The dollar has picked up moderately amid a backdrop of geopolitical risk. While pro-democracy protests continued in Hong Kong's central business district, reports came in that Beijing has expanded the scope of its Hong Kong security law to cover organisations as well as individuals. The U.S. has threatened to take measures if the law is implemented. The narrow trade-weighted USD index inched up to a high of 99.21, up from yesterday's 24-day low at 98.90. EUR-USD continues to trade in a broad consolidation range near the halfway mark of the volatile range that was seen during the height of the global market panic in March, which was marked by 1.0637 on the downside and 1.1494 on the upside. We expect the pair to lack sustained directional bias for now, though political tensions among Eurozone members, coupled with the dollar's role as a haven, suggest the risks are to the downside. There is little divergence in central bank policy currently, with both the ECB and the Fed pursuing aggressively accommodative policy, with both Europe and the U.S. facing significant economic headwinds from virus-containing lockdown measures. Both are amid the early stages or reopening from lockdowns.

                    [USD, JPY]
                    USD-JPY edged out a five-day low at 107.36, which marked the base of a sub 30-pip range. We retain an overall bearish view of the pairing, with both the coronavirus pandemic and Hong Kong issue escalating U.S.-China, and more broadly West-China, relations. There is also a risk that markets are over-anticipating the scope for a full recovery from reopening economies, especially given the risk that there could be a second-wave of infections. This could return demand of the yen as a safe haven. Regarding Hong Kong, while pro-democracy protests continued in Hong Kong's central business district, reports came in that Beijing has expanded the scope of its Hong Kong security law to cover organisations as well as individuals. It will go before the Chinese parliament this week where it's expected to be ratified into law. The U.S. has threatened counter measures if the law comes into effect, and the EU has signalled it will be giving a "robust" message to China on the issue.

                    [GBP, USD]
                    The pound's proclivity to correlate with stock markets has been on display over the last day, with Cable yesterday rallying concomitantly with global stock markets to posting a 15-day high at 1.2364. Only the Australian and New Zealand dollars outperformed the UK currency out of the main currencies. The causation of sterling's high-beta characteristic, which was seen during the 2008/9 financial crisis and again during current pandemic crisis, is a combo of the UK's open economy, large current account deficit, and relatively outsized financial sector, which renders the currency sensitive to risk-off phases, while on the flip side making it apt to outperform during the risk-back-on phases. Cable has consequently been on an roller coater, plunging in March, at the height of the market panic, by the most over a two-week period on record, which left a 35-five year low at 1.1409. The gain over the last day has pushed the pound back toward the lower reaches of a broad consolidation range that's been enduring since April. Research out of Lloyds bank in London suggests that, with the acute dislocations since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. Its Cross-Asset Risk Index has fallen from a positive correlation of 0.85, at the high, to 0.61 now. We continue to anticipate limit potential for a sustained recovery in sterling, which is presently trading at a near 7% year-to-date discount when averaged against the dollar, euro and yen. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaved its post-Brexit transition membership of the EU's single market (which includes 40 free trade agreements around the world) at year-end, which would put a large part of UK trade on much less favourable WTO terms.

                    [USD, CHF]
                    The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB. The Swiss central bank has a long history of intervening to either limit of slow the pace of appreciation in its currency, which normally comes during periods of risk aversion in global markets and/or euro underperformance. From 2011 through to 2015, the SNB capped the franc via a 1.2000 floor in EUR-CHF. When the cap was abandoned in January 2015, the franc rallied by 30%, having become unfeasible for the SNB to counter the ECB's expansive monetary policies. A similar circumstance is afoot today, with the ECB maintaining expansive polices following a period of safe haven demand for the franc. In January, the U.S. added Switzerland to its list of currency manipulators. The move seemed a bit harsh 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 argued that Switzerland should pursue a more expansive fiscal policy as a remedy.

                    [USD, CAD]
                    USD-CAD traded a narrow range in the upper 1.37s, above yesterday's 10-week low at 1.3755. The oil-correlating currency has been tracking the ebb-and-flow of crude markets. Front-month WTI oil prices are softer today after yesterday hitting an 11-week high at $34.81. The IEA said that the pandemic crisis is causing the biggest fall in global energy investment in history. An FT on a report at the weekend detailed a sharp drop in U.S. oil output, with further declines expected later in 2020, with many oil mining operations there having been rendered unviable at prevailing prices. This chimes with last Friday's weekly Baker-Hughes rig count, which revealed another 21 oil rigs were shuttered in the U.S., to bring the the tally to 237 after what is now the 10th straight week of closures. Recent dips in oil inventories have also illustrated shifting fundamentals, with reopening economies around the world stimulating more demand, just as supply continues to ebb. Good reason to be bullish of the Canadian dollar.

                    XE Currency Blog

                    Topics7137 Posts7182
                    By XE Market Analysis May 26, 2020 2:53 pm
                      XE Market Analysis's picture
                      XE Market Analysis Posts: 5061
                      XE Market Analysis: Asia - May 26, 2020

                      The Dollar fell broadly in N.Y. on Tuesday, taking the DXY to three-week lows of 98.96, down from overnight highs of 99.77. Unwinding of USD long safe-haven positions drove the the Greenback's move lower, as a strong bout of risk-on set in. The re-opening of the economy, along with positive news on the coronavirus vaccine front buoyed sentiment broadly. Incoming data had consumer confidence edge slightly, while new home sales handily beat expectations by rising. Wall Street surged to three-month highs, while Treasury yields headed higher. EUR-USD topped at four-session highs of 1.0992, up from near 1.0950 at the open. USD-JPY based at 107.40 early, down from 107.93 seen overnight, later bouncing over 107.65. USD-CAD fell to two-plus month lows of 1.3769, down from 1.3875 into the open. Cable recovered sharply from 1.2220 during the European morning session, though steadied in N.Y. between 1.2325, and 1.2360.

                      [EUR, USD]
                      EUR-USD rallied from Asian opening lows of 1.0892 to late morning highs of 1.0992, as the Dollar sold off broadly as risk-taking levels ramped up on hopes for the start of economic recovery, and encouraging news on the coronavirus vaccine front. The safe-have Greenback came under pressure early in Asia, as regional equity markets turned higher, and EUR-USD continued to advance through the N.Y. morning session, as Wall Street soared higher. EUR-USD will likely remain supported, should risk-on conditions remain in place, though the pairing has been unable to hold above the 1.1000 level for nearly two months, and may continue to struggle, as the 200-day moving average at 1.1013 provides a barrier.

                      [USD, JPY]
                      USD-JPY printed intra day lows of 107.40 in early N.Y. trade, down from overnight highs of 107.93. Despite the risk-on backdrop, the pairing remains on the down slope, as broad USD selling has picked up at the N.Y. open. Hopes for early economic recovery, along with positive news on the vaccine front have weighed on the Dollar, as safe-haven flows are reversed. USD-JPY remains inside of its one-week range of 108.09 to 107.32, and will need to break out from either side to shift overall market sentiment. The pairing managed to recover toward 107.70 into the London close.

                      [GBP, USD]
                      Cable advanced to a better than two-week high of 1.2363 in N.Y. morning trade, up from London lows of around 1.2215. Research out of Lloyds Bank in London suggests that, with the acute dislocations seen since in March now fading and markets regaining their posture, the pound's correlative link with global stock markets is weakening. We continue to anticipate limited potential for a sustained recovery in Sterling. UK markets are discounting negative repo rate by year-end, while there remains a risk that the UK leaves its post-Brexit transition membership of the EU's single market at year-end, which would put a large part of UK trade on much less favorable WTO terms.

                      [USD, CHF]
                      The SNB has successfully been putting a cap on the franc, which has seen EUR-CHF in recent weeks skirt along just above the five-year low that was first seen on March 9th at 1.0505 without breaching it. Weekly sight deposit data out of Switzerland has pointed to the extent of SNB franc selling over the pandemic crisis period, which was most acute in March before basing out as global governments and central banks acted with interventions and stimulus packages. A rise in sight deposits (money held by commercial banks) can suggest the francs turning up after being sold by the central bank. The 1.0500 level in EUR-CHF, while not a fixed floor, has clearly been a line in the sand of the SNB.

                      [USD, CAD]
                      USD-CAD fell to better than two-month lows of 1.3769 in early North American trade, with losses coming on the back of higher oil prices, and risk-on conditions, as hopes for economic recovery improve, and as positive news on vaccines is reported. The pairing is down from nearly 1.3990 after the close on Monday. Sell-stops are reported just under the psych 1.3800 level, with support then stepping in at the March 16 low of 1.3731. Resistance is at the 1.4000 level, which represents the 20-day moving average. Assuming risk appetite and oil prices hold up, USD-CAD looks destined to add to recent losses.

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