XE Market Analysis: Asia - Aug 31, 2020

The DXY printed fresh 28-month lows of 92.01 in N.Y. trade on Monday. Dollar bears have been the winners of late, following the Fed's shift in inflation policy, which should keep U.S. rates near zero for the foreseeable future, and keep the USD under pressure. The caveat to that is U.S. data, and the COVID backdrop. Should economic conditions continue to improve, the Greenback may receive a respite. The data slate was light to start the week, though the August Dallas Fed index moved into positive territory. EUR-USD climbed to 1.1964 from early lows of 1.1919, while USD-JPY peaked at 106.09, later falling to 105.79 lows, then steadying over 105.90. USD-CAD printed eight-month lows of 1.2920, down from early highs of 1.3075. Cable meanwhile, printed an eight-month highs of 1.3396.

[EUR, USD]
EUR-USD was unable to take out the 27-month high of 1.1967 seen on August 18, peaking at 1.1964 before easing slightly lower into the 1.1940 level after the London close. The Dollar was heavy across the board in N.Y. trade on Monday, continuing its trend seen since Fed chair Powell's speech last week, when he confirmed a shift, as the Fed now seeks inflation that averages 2% over time. Rates will stay low for longer, which should keep the USD on the back foot for now. For EUR-USD, a break of the trend high will see the psych 1.2000 mark in the cross hairs.

[USD, JPY]
USD-JPY hit a an intra day high of 106.09, up from Asian lows of 105.29. A mildly positive risk backdrop was supportive early in the session, though with Wall Street later losing ground and the USD generally weakening, overall, further USD-JPY gains are liable to remain limited going forward. Indeed, the pairing eased back to lows under 105.80 in late morning trade. Friday's 105.19 low marks support, with resistance at 106.10.

[GBP, USD]
Cable posted a fresh eight-month peak at 1.3396. Dollar weakness was the driver on Monday, as sthe USD continues to stumble following the Fed's policy shift last week. Markets continue to take a sanguine view of the apparently stalled progress in trade talks between the EU and UK. All things Brexit go down to the wire, and expectations for any real progress are low until much nearer the deadline, which is widely accepted as being the EU's leaders' summit in October. A bear-bones deal or a no-deal outcome are a risk. Another downside risk for the pound is that the UK government's pandemic-era furlough scheme will end in late October, which is likely to cause an upward jolt to the unemployment rate.

[USD, CHF]
EUR-CHF was steady again on Monday, again trading in the mid to lower-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 took out Friday's seven-plus month low of 1.3045, basing at 1.3020, after ranging overnight between 1.3104 and 1.3059 lows in early North American trade. Firmer oil prices should continue to weigh on the pairing, while the USD generally is trading on a softer footing. The January low of 1.2953 low is the next support level, with resistance at Friday's peak at 1.3133.