XE Market Analysis: Asia - Sep 17, 2020

Dollar gains seen following the FOMC on Wednesday, and through the overnight Asian session evaporated during London morning trade and through the N.Y. session on Thursday. The DXY stood at about 93.10 just ahead of the Fed, rallied to 93.58 in Asia, later bottoming at 93.06 in N.Y.. Mediocre U.S. data weighed some, as housing starts missed the mark, and jobless claims remained sticky over 850k. Likely the largest driver of the USD's slip though, was the overreaction seen in markets to the FOMC on Thursday. The dot plot threw the markets a bit of a curve as it marked up rate hikes in the future. With Dollar positions now have being squeezed in both directions. The DXY is right back in the middle of its two-week trading band. During the N.Y. session, EUR-USD rallied from 1.1791 to 1.1828, while USD-JPY recovered slightly from 104.52 to over 104.85, as risk-off conditions prevailed. USD-CAD chopped between 1.3180 and 1.3230, while GBP-USD recovered from 1.2865 to near 1.3000.

[EUR, USD]
EUR-USD rallied to 1.1828 highs, up from overnight lows of 1.1737, which was a one-month bottom. Buyers emerged under the 50-day moving average, which is currently at 1.1745, and gains were extended through the N.Y. session. Dollar gains seen following the FOMC came on the back of upgraded economic and employment forecasts, along with some head scratching on the Fed's "dot plot", appear to have run their course, leaving EUR-USD back in the center of the range seen since August.

[USD, JPY]
USD-JPY has partially recovered from the six-week low of 104.52 seen into the N.Y. open, rallying modestly to over 104.80. The paring of Wall Street losses has supported Dollar-Yen, as risk-off conditions moderate. The pairing has posted four consecutive sessions of lower daily highs and lows, a bearish indicator, and will now have its sights on the July bottom at 104.18. Overnight, the BoJ offered no surprises, leaving policy unchanged as expected, while hinting it could ease further if economic conditions warranted. The Bank also painted a slightly rosier outlook for the economy, which may have helped the Yen at the margins.

[GBP, USD]
The Pound dropped sharply on the BoE's mention of negative interest rates ahead of the N.Y. open. While policymakers stressed that the BoE is not ready to go negative with interest rates, the message that it is readying itself to do so is clear, which hit both sterling and short-dated UK yields. Cable dove by a big figure in pegging a low at 1.2865. The BoE said that the MPC was briefed on its research into how negative interest rates might be introduced in the UK, and confirmed that the central bank and Prudential Regulation Authority will begin "structured engagement on operational considerations in 2020 Q4." Aside from this, the BoE left left the repo rate and QE settings unchanged, as had been widely anticipated. Cable spend the N.Y. morning session recovering to near 1.3000 on broad USD weakness.

[USD, CHF]
EUR-CHF has ebbed back to familiar levels in the mid 1.0700s after the latest drop back from forays above the 1.0800 level. The cross has repeatedly failed to sustain gains above 1.0800 over the last couple of months. The influence of the SNB's intervening hand may have been at play during the recent upside bursts.

[USD, CAD]
USD-CAD ran up to seven-session highs of 1.3247 overnight, later easing to 1.3182 into the North American open on the back of higher oil prices. Risk-off conditions, along with a pullback in WTI prices resulted in a USD-CAD high of 1.3230 early in the session, though since then, reports that OPEC, while concerned over what impact a second wave of COVID would have on demand, also sees signs of economic recovery in some areas, and signs of easing inventory surpluses. This saw oil prices head to two-week highs over $41.00, which pushed USD-CAD back under 1.3200.