XE Market Analysis: Asia - Oct 07, 2020

After rallying sharply on Tuesday after Trump canceled stimulus negotiations, then pulling back overnight as Trump offered up targeted stimulus, the Dollar was relatively steady through the N.Y. session on Wednesday. Fresh hopes for stimulus saw Wall Street erase Tuesday's sharp losses, and sent Treasury yields higher. There was no data to move markets, and the FOMC minutes had no impact on the USD. EUR-USD opened near 1.1770, topped at 1.1782, and hot a low of 1.1758. USD-JPY moved up from early lows at 10585, later peaking at 106.04. USD-CAD was range bound between 1.3292 and near 1.3260, while GBP-USD outperformed rallying from early lows of 1.2845 toward 1.2930. Thursday's U.S. calendar will bring weekly jobless claims, which we expect will dip to 825k from 837k previously.

[EUR, USD]
EUR-USD has been steady in N.Y. trade, after sliding late in the day on Tuesday as Trump-induced risk off saw the pairing dive to 1.1725, after peaking over 1.1800 earlier in the session. Since then the Euro recovered to 1.1782, as risk-taking returned on hopes for a targeted stimulus bill. EUR-USD has ranged between 1.1782 and 1.1758 since the N.Y. open. From here, direction will largely be determined by the risk backdrop, with the Dollar continuing the ebb and flow on risk taking levels. In the lead-up to the U.S. election, volatility will likely be on the rise, resulting some choppy price action.

[USD, JPY]
USD-JPY topped at nearly one-month highs of 106.10, up from overnight lows near 105.60. The risk-sensitive Yen weakened as risk-on returned in the aftermath of Trump saying he is ready to approve support for airlines and wage protection. The pairing since eased back to 105.85, though remained bid, trading on either side of the 106.00 mark as Wall Street erased Tuesday's sharp losses. Elsewhere, the USD remained under some pressure, as safe-haven demand was unwound.

[GBP, USD]
Cable fell from 1.2930 in London morning trade to 1.2850 into the N.Y. open, later recovering to 1.2929 highs into the London close. The earlier sell-off came as Ireland's foreign minister, Coveney warned that the UK should not underestimate how strongly the EU feels about fishing rights, which, along with reports that the Brussels was set on calling the UK government's bluff on his no-deal threat, elicited a terse reply from the UK prime minister, Johnson, that "we will take back full control" on January 1. Even with a tariff free, quota free deal, the UK's loss of access to the single market and customs union would lead to trade destruction. UK exporters would face cost-increasing non-tariff barriers, such as customs formalities and regulatory barriers. Productivity would also be impacted, given reduced competition and reduced scope for businesses to benefit from economies of scale. We remain bearish on the pound.

[USD, CHF]
EUR-CHF remained under 1.0800 in N.Y on Wednesday, trading a narrow range in the 1.0780-90 region in N.Y. The SNB remains committed to limiting gains in the franc. At its quarterly monetary policy review last month, it stated that the franc remains "highly valued" and said it is ready to "intervene more strongly in the foreign exchange market". The cross has repeatedly failed to sustain gains above 1.0800 over the last couple of months, even though influence of the SNB's intervening hand may have been at play during the recent upside bursts.

[USD, CAD]
USD-CAD hit session lows of 1.3270 in early North American trade, down from overnight highs of 1.3340. The pairing rallied late in the session on Tuesday after Trump tweeted he was cutting off stimulus negotiations. That resulted in a round of safe-haven USD buying, as risk taking levels fell sharply. Since then, risk-on returned after Trump indicated he would sign off on more targeted stimulus, allowing stocks to rise, putting downward pressure on the USD. USD-CAD managed a high of just 1.3289 through the session. Oil prices were a bit wobbly through the morning session, with WTI crude having difficulty holding the key $40 mark. Oil later recovered to near $40, which saw USD-CAD head toward 1.3260 in afternoon trade.