XE Market Analysis: Asia - Aug 24, 2020

The DXY bounced from opening lows of 92.84, making its way to 93.28 through the morning session. There was no data to influence markets, though Wall Street was stronger amid a confluence of positive developments. President Trump announced Sunday that the FDA approved blood-plasma treatment for emergency use. China gave the green light to its Covid-19 vaccine for emergency treatment. There was a potential sign of thawing in U.S-China tensions, as Bloomberg reported that President Trump is privately seeking to reassure U.S. companies that they can still do business with the WeChat messaging app in China. A dovish lean from Fed Chairman Powell is expected at the (virtual) Jackson Hole meetings at the end of the week. Treasury yields were little changed. EUR-USD slipped from near 1.1850 to 1.1792, while USD-JPY headed from 105.70 to near 105.95. USD-CAD rallied from 1.3132 to 1.3230. GBP-USD dropped under 1.3060 from near 1.3150 to under 1.3060.

[EUR, USD]
EUR-USD faded from opening highs of 1.1849 before falling to 1.1792 after the London close. The pairing had been as low as 1.1784 in overnight Asian trade. A more upbeat picture on the U.S. economy over the past few sessions has for now at least, put a floor under the USD's recent declines. An apparent improving in U.S. COVID cases, along with some renewed indication of rising virus cases in Europe, have combined to support EUR-USD as well. Friday's eight session low of 1.17554 now marks support, with resistance at Friday's 1.1883 peak.

[USD, JPY]
USD-JPY has rallied modestly to highs over 105.90 in afternoon trade, up from 105.69 lows seen into the open. Risk-on conditions have supported, though FX trade overall remains quiet, with narrow trading bands seen in most major Dollar pairings. Impact from the less dovish than expected FOMC minutes last week, which indicated the Fed is in no hurry to ease policy further has continues to provide a modicum of support, though continues improvement in the U.S. economy could be the driver of USD strength going forward.

[GBP, USD]
Cable dipped under its 20-day moving average of 1.3083 in N.Y. morning trade, bottoming at 1.3060, and down from opening highs near 1.3150.. The Dollar overall posted gains on Monday. Last week's trade talks between the EU and UK were a flop. The lack of progress on the U.K./EU trade talks will keep uncertainty high until October's EU leaders' summit. Given the risks of a no deal, or only a narrow deal, we are wary about the pound's outlook. We also anticipate the UK's economic recovery from full lockdown to plateau in the weeks and months ahead.

[USD, CHF]
EUR-CHF remained inside of Friday's trading range on Monday, trading in the mid-1.07s. The franc, an historic low-beta safe-haven currency, periodically correlatives inversely with global stock market direction, along with sentiment about the EU (Switzerland's biggest trading partner). The influence of the SNB's intervening hand may have been at play this week, too. Total Swiss sight deposits of francs have risen by 130 bln since the pandemic and consequential lockdowns took a grip on global markets back in March. Sight deposits can be viewed as a proxy marker of SNB intervention to sell francs in forex markets (after buying foreign currencies), which results in the crediting of newly created francs at commercial banks sight accounts.

[USD, CAD]
USD-CAD headed to intra day highs of 1.3230, after printing fresh seven-month lows of 1.3132 at the North American open. Better news on the U.S. economy last week has been supportive of the pairing, while crude oil's inability to break higher out of its near sideways two-month trading band has stalled CAD gains as well. WTI crude will need to head above, and hold the $43 level for the CAD to gain further traction.