XE Market Analysis: Asia - Mar 26, 2021

The Dollar mostly took a breather on Friday following three-straight sessions of gains. Profit taking was a feature following mixed incoming data, with USD-JPY being the exception, as it posted fresh nine-month high of 109.85 on the back of risk-on conditions and firmer Treasury yields. Personal income fell a bit more than consensus, consumption was weaker than expected, and the advance goods trade deficit was wider than expected. Wall Street moved up on the back of recovery hopes, as the Covid vaccine rollout continues to ramp up. Given the Dollar's yield advantage, and the brightening outlook for the U.S. economy, further USD gains would appear to be in the cards.

[EUR, USD]
EUR-USD remained above Thursday's four-month low of 1.1762, topping at 1.1797 in London morning trade before touching a pre-open low of 1.1772. The pairing later topped at 1.1805 into the London close. The Dollar overall took a breather from three straight days of gains, with profit taking likely a motive into the weekend. This said, we expect further EUR-USD losses in the coming weeks, as the USD yield and economic growth advantages over Europe will continue. The next support level is at the November 12 low of 1.1759, with resistance at the 200-day moving average at 1.1859.

[USD, JPY]
USD-JPY rallied from 109.18 lows overnight, dipping a bit following the early U.S. data round, falling from 109.82 highs to 109.68, though has later headed back to 109.85. Firmer Treasury yields continue to support the interest rate sensitive pairing, which is now within reach of the June 5 high of 109.85. A move above there takes USD-JPY to one-year high territory, with the 110.00 psych level the next target from there. As was the case over 109.00, Japanese export offers are said to be parked from the 110.00 mark.

[GBP, USD]
Cable recovered above 1.3800, extending the rebound from the seven-week low that was seen Thursday at 1.3670. The move higher was partly due to a modest downturn in the USD, attributed to pre-weekend position squaring. BoE MPC member Saunders said earlier that U.K. unemployment is not likely to rise as much as was forecast by the central bank in February, upbeat remarks, although lacking the jauntiness displayed by his colleague on the MPC, BoE Chief Economist Haldane, yesterday, who said that he expects a "rip-roaring" recovery, with consumers chomping at the bit to spend lockdown savings. This week's preliminary March PMI survey data, which smashed expectations, found businesses reporting that an increase in consumer demand in anticipation of societal reopening was already under way. The UK vaccination status remains encouraging, though there is some evidence of new outbreaks in some areas as a consequence of schools reopening, while vaccine supply issues out of Europe and India will slow progress over the next couple of months.

[USD, CHF]
The SNB maintained its expansionary policy stance. The statement stressed that the pandemic "is continuing to have a strong adverse effect on the economy", adding that despite the "recent weakening, the Swiss franc remains highly valued" and against that background the policy rate was held at -0.75% and the bank stressed that "it remains willing to intervene in the foreign exchange market as necessary". The bank will also continue to supply the banking system with liquidity on "generous" terms. Nothing really new there, despite the fact that the SNB lifted its conditional inflation forecast on the back of higher oil prices and a weaker CHF. However, the new forecasts, which project average price increases of 0.2% this year, 0.4% for 2022 and 0.5% for 2023 are clearly nothing that would force the SNB to abandon the very expansionary policy. Looking forward the SNB's baseline scenario expects a gradual easing of virus restrictions in coming months and the forecast for overall growth this year remains at 2.5-3.0%. However, the SNB highlighted ongoing uncertainty, and warned that against the background of ongoing increases in mortgage lending and residential property prices this market remains vulnerable and "continues to present a risk for financial stability"

[USD, CAD]
USD-CAD traded to 1.2561 lows, down from 1.2615 highs seen after Thursday's close, and opening levels of 1.2590. Risk-on conditions, a generally softer USD, and a run-up in oil prices supported the CAD on Friday. WTI crude was back over $61.00 from Thursday lows of $57.44, with buyers stepping in following reports the container ship stuck in the Suez Canal won't be freed until Wednesday at the earliest. The DXY was off its trend high, after printing three-straight days of higher daily highs. USD-CAD support comes at 1.2547, Thursday's low, with resistance at the 50-day moving average at 1.2653.