XE Market Analysis: Asia - Apr 12, 2021

After losing ground overnight, the Dollar was steady through the N.Y. session, albeit near recent lows. The DXY bottomed at 92.01, just above Thursday's better than two-week low of 92.00. Traders appeared to have been largely sidelined through the session, waiting on Tuesday's key March U.S. CPI report. Inflation concerns remain, and a big CPI miss in either direction, will likely impact Treasury yields, and in turn, move the Greenback, which has been sensitive to interest rates since near the beginning of the year. Wall Street headed modestly lower, after both the Dow and S&P 500 closed at fresh record highs on Friday. Treasury yields, meanwhile, were slightly elevated through the session.

[EUR, USD]
EUR-USD remains above its 200-day moving average in N.Y. trade on Monday, after closing above the level last Thursday and Friday. The pairing has been unable to take out Thursday's near three-week top of 1.1928, and like most Dollar pairings, has remained inside of a familiar trading range. U.S. CPI data on Tuesday and retail sales on Thursday may be key for the USD this week, and the FX market will watch Treasury yields closely following the data. Firmer CPI and upside risks for retail sales could see yields spike, which will likely increase demand fo the USD. The un-up in yields since the start of the year has been the biggest driver of Dollar gains since then.

[USD, JPY]
USD-JPY has so far remained inside of Friday's trading range, sticking to a 109.25 to 109.80 band since the Asian open. The pairing has been steady since the N.Y. open, managing just a 109.39 to 109.26 range. Quiet FX trade has been in vogue this morning overall, perhaps as traders stay near the sidelines ahead of Tuesday's key March CPI report. Inflation fears, while less pronounced than a couple of weeks ago when Treasury yields rose to 14-month highs, remain in place, and an outsized miss in either direction could have significant impact on the Dollar, and on the interest rate sensitive USD-JPY in particular.

[GBP, USD]
Cable recovered to 1.3777 in N.Y., but not before hitting two-month lows of 1.3669 overnight. The Pound gained against most other currencies on Monday, recouping some lost ground after underperforming last week. This came with the UK taking its biggest step so far in reopening from pandemic restrictions, including the reopening of non-essential retail outlets and sport venues in the UK, which along with springtime weather should set the scene for an acceleration in economic activity. Tuesday's UK calendar brings February production, trade and GDP, along with the March BRC retail sales report. Industrial production is expected to rebound by 0.5% m/m after the 1.5% contraction in January, and GDP is seen rising by 0.6% m/m in February after shrinking by 2.9% in the month prior. We retain a bullish view of the Pound overall.

[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. EUR-CHF had held above the key 110.00 level for over a month, before dipping under the level on Friday and Monday, printing a better than one-month low of 1.0975.

[USD, CAD]
USD-CAD eased to 1.2532 ahead of the North American open, down from overnight highs of 1.2568. The pairing dipped under its 20-day moving average at 1.2548, after finding sellers last week near its 50-day moving average, which is currently at 1.2614. USD softness, along with higher WTI crude prices kept pressure on USD-CAD this morning. Later, a round of short covering, prompted by a modest sell-off in oil took USD-CAD to 1.2572 highs. Friday's 1.2524 low marks the next support level.