XE Market Analysis: Asia - Aug 19, 2020

The Dollar managed to stem the bleeding in N.Y. on Wednesday, and rallied modestly through the session. The DXY held above Tuesday's 27-month low of 92.13, rallying from early lows of 92.24 to 92.75 highs. There was no data to drive markets. Wall Street was modestly higher, and Apple hit a milestone, becoming the first U.S. company to surpass a $2 tln market cap. Treasury yields were fractionally lower. EUR-USD fell from 1.1948 highs to 1.1868, while USD-JPY headed from opening lows of 105.26 to 105.79. USD-CAD was at 1.3134 early in the session, later bouncing to 1.3187. GBP-USD peaked at 1.3227 before falling into 1.3150. The USD rallied further after the release of the FOMC minutes, where there was no clear indication of any dovish policy shift, leaving a fairly ambiguous outlook in place. Given recent USD losses, profit taking could have been a driver of USD short covering. Traders are still thought to be well short the Greenback overall. EUR-USD slipped to 1.1830 from near 1.1885, as USD-JPY rallied to 106.00 from under 105.70 following the minutes. Thursday's U.S. calendar features weekly jobless claims, the August Philly Fed index, and July leading indicators.

[EUR, USD]
EUR-USD remained inside of Tuesday's trading band for most of the session, taking a pause from recent sharp gains. Indeed, the lack of fresh trend high today appeared to have prompted a round of position squaring. From its N.Y. high of 1.1948, the Euro fell to 1.1863 lows ahead of the FOMC minutes. The lack of dovish guidance from the Fed saw the EUR slip to 1.1830 late in the session. Improving U.S. data, record high U.S. equity markets, and new hopes for a "skinny" virus stimulus bill could for now slow, or partly reverse the Dollar's recent losses. EUR-USD support is at Tuesday's 1.1863 low, with resistance at yesterday's 1.1967 high.

[USD, JPY]
USD-JPY hit August lows of 105.18 into the N.Y. open, down from overnight highs of 105.61. Since then, the pairing had been on the rise through the morning session, touching a 105.79 peak. USD selling took a break on Wednesday following a week or so of steady losses, which given the mostly risk-on backdrop, which allowed USD-JPY to recovery modestly. After the FOMC minutes, USD-JPY popped to 106.00 highs. Resistance is at Tuesday's 106.07 high, with support now at the psych 105.00 level.

[GBP, USD]
Cable pulled back to a 1.3163 low after posting a 2020 high at 1.3268 in London morning trade. UK July CPI rose more than forecasts, though while CPI remains well below target, the relative strength in the data should strengthen the BoE's wait-and-see stance and keep the possibility of negative interest rates off the the table. Focus remains on trade talks between the EU and UK, which have continued over the summer season. The UK prime minister's spokesman said yesterday that Downing Street still believes a deal is possible as soon as next month, which is exactly what the UK's chief trade negotiator Frost said last Friday. Given the risks of a no deal, or only a narrow deal, we expect the Pound's upside to be limited from here. The not so dovish FOMC minutes later saw Cable head to 1.3095 lows.

[USD, CHF]
EUR-CHF topped at 1.0851 in N.Y on Wednesday, catching a bid as USD-CHF short covering ahead of its multi-year low of 0.9010 seen on Tuesday kicked in. Weekly sight deposit figures out of Switzerland have been suggesting that the central bank has been continuing to sell francs regularly, as it has been since the consequences of the pandemic took a grip on markets, which had the impact of increasing demand for the Swiss currency. A rise in sight deposits can suggest francs turning up after being sold by the central bank. The advent of the EU's recovery fund, seen as a milestone by many analysts (a new liquid AAA fund that also reduces Eurozone breakup risks) has by many accounts caused a re-weighting of the common currency in portfolios, and which will help the SNB combat what it sees as a chronically overvalued franc.

[USD, CAD]
USD-CAD traded to fresh seven-month lows of 1.3136 after the North America open, after peaking at 1.3175 after Tuesday's close. The pairing later bounced over 1.3185 following cooler than expected July Canada CPI, and as slightly healthier USD backdrop. The Fed minutes resulted in general USD strength, taking USD-CAD to highs of 1.3214.From a technical standpoint, USD-CAD crossed under a major support level on Tuesday, closing under its 200-week moving average, currently at 1.3172 for the first time since January. Today, the pairing is set to close above the level. USD and oil prices, along with risk taking levels will continue to drive CAD direction.