XE Market Analysis: Asia - Mar 15, 2021

The Dollar was steady through the N.Y. session on Monday, seeing the DXY range between 91.96 and 91.76, before holding near mid-range into the close. U.S. data was light, though aa two-year high print for the March Empire State index gave the Buck some modest support. The ever-expanding pace of vaccine rollout, and prospects for a quicker economic recovery should keep the USD underpinned for now. Yields were slightly lower, while Wall Street was tentatively higher. Tuesday's docket picks up as the two-day FOMC meeting kicking off, with the policy announcement and press conference due Wednesday afternoon. Crucial will be what the Fed's projections suggest about the rate and QE stance in future years. It is still the case that no one expects any changes this year. For data, February retail sales, February industrial production and Capacity utilization are due, along with February trade prices, January business inventories and the March NAHB housing market index.

[EUR, USD]
EUR-USD was range bound through the N.Y. session, sipping to 1.1911 into the London close, since topping at 1.1937, still well below the one-week highs of 1.1990 seen late last week. The ECB surprised markets by announcing a ramp up in its asset purchase program last week in an effort to dampen rising yields. Markets continue to focus on growth and yield differentials, and the U.S. economy is widely seen outpacing the Eurozone and other peers this year, thanks in large part to the massive upcoming U.S. fiscal spending spree. Friday's low of 1.1910 marks support, with resistance at Friday's high of 1.1889.

[USD, JPY]
USD-JPY retreated from nine-month highs of 109.36 seen during the London morning session, subsequently easing to 109.00 ahead of the N.Y. open, and later rallying to 109.25. Interest rate spreads in favor of the USD have provided the bulk of support for the pairing, as the 10-year Treasury yield remain near one-year highs, while 10-year JGB rates have been capped by the BoJ's yield curve control measures. The BoJ meeting announcement comes Friday, where the yield curve may be addressed. The central bank has been under pressure to expand the target rage, and may announce a phasing out of numerical targeting. BoJ Governor Kuroda said earlier in the month that the yield curve needs to remain "stably low," though said policy will be assessed at the upcoming policy review.

[GBP, USD]
Cable fell from pre-open highs of 1.3947, then spent the bulk of the N.Y. morning heading lower, later basing at 1.3853 into the London close. The move lower came despite 10-year gilt yields matching the magnitude of U.S. Treasury yield gains since late last week, and pushing towards 20-month highs. The next BoE's MPC meeting is coming on Thursday, though no changes are widely anticipated, and, judging by the prevailing course of Gilt yields, market participants don't appear to be anticipating much difference in terms of prevailing cautious guidance. This is our expectation given the evident success of the UK's Covid vaccination program and heightening prospects for reopening. As a result, Sterling should remain in buy-the-dip mode for now.

[USD, CHF]
Policymakers at the SNB retain an ongoing concern about the Franc's value. Unlike most central banks, the SNB explicitly incorporates the franc into monetary policy to ward off speculative purchases of the currency, which would impart deflationary forces (via cheaper imports) with the consequential impact of an unwelcome tightening in real interest rates. The central bank repeated at its latest quarterly monetary policy review that the franc remains "highly valued" and said it is ready to intervene directly in the foreign exchange market. The cross on Thursday broke to a 19-month high of 1.1098 high, with the franc set to underperform on improved hopes for global economic recovery, as Covid vaccines are rolled out. The cross has eased from its best levels this week, though has held above the key 1.100 mark for two weeks.

[USD, CAD]
USD-CAD recovered to 1.2513 in North America, after printing fresh three-year low of 1.2441 ahead of the open. The Canadian manufacturing and housing data were in line with expectations and had little impact, though declining oil prices supported the pairing through late morning. WTI crude fell from early highs of $66.40 to lows of $64.17, before recovering some, which put some weight on the CAD. USD-CAD support now comes at the psych 1.2400 level, with resistance up at Friday's high of 1.2573.