XE Market Analysis: Asia - Jun 08, 2021

The Dollar was a bit softer in N.Y. trade on Tuesday, though was rangebound for the most part. An early drop in Treasury yields, reportedly the result of a large short position being unwound, saw the 10-year yield drop to near 1.51% from 1.57%, which weighed on the USD. The timing coincided with the release of the narrowed U.S. April trade deficit. We look for some FX consolidation to set in for now, as traders remain sidelined ahead of the ECB meeting, and the U.S. May CPI report, both on Thursday. The U.S. calendar is again light on Wednesday, but will have April wholesale data, with sales seen 1.5% from 4.6% in March, and inventories expected up 0.8% from 1.3% previously. Weekly MBA mortgage and oil inventory figures are on tap as well. The Treasury will auction $38.0 bln of reopened 10-year notes.

[EUR, USD]
EUR-USD remained inside of Monday's trading range, though maintained its bid tone as U.S. Treasury yields slid lower. The 10-year note hit near 1.51% lows form 1.57% on reports of the unwinding of a large short position. EUR-USD bottomed at 1.2171 in early trade, later peaking at 1.2193 before settling in near 1.2180 into the London close. The Euro found some support from upward revisions to Eurozone Q1 GDP numbers, which added to the arguments of the hawkish camp at the ECB ahead of Thursday's council meeting. German ZEW investor confidence declined, but remained at very high levels. Some consolidation is likely ahead of Thursday's ECB meeting and the U.S. May CPI report.

[USD, JPY]
USD-JPY topped at 109.56 into the open, subsequently falling to 109.27 following the trade data. The strange slide in Treasury yields, which saw the 10-year rate fall toward 1.51% from 1.57%, drove USD-JPY lower, and with yields recovering some since then, the pairing has bounced over 109.45. Monday's 109.19 low, and the 50-day moving average, also at 109.19 is the next support level.

[GBP, USD]
Cable was rangebound through the N.Y. session, trading from 1.4157 early in the session, later bottoming at 1.4121, then bouncing to 1.4159 into the London close. The pairing had topped at 1.4186 overnight. The FX market continues to keep an eye on Covid in the U.K., as cases there continue to rise, nearly doubling over the past two-week. According to a report by BBC on Tuesday, the U.K. government is 'open' to delaying 21 June England lockdown end date, which would remove all Covid restrictions. The increase in cases of the so-call Delta variety, which is more transmissible than previous Covid variants, could trigger an extension of lockdowns in England.

[USD, CHF]
The SNB continues to maintain 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 briefly topped the key 110.00 mark for the first time in nearly two-weeks, though quickly turned lower, bottoming at 109.56, as the 50-day moving average at 1.1005 provided resistance.

[USD, CAD]
USD-CAD rose from session lows of 1.2071 to 1.2115 following the U.S. and Canadian trade reports, which saw the U.S. deficit narrow, and Canada's previous month deficit flip to a modest surplus. USD-CAD gains were short-lived, as WTI oil prices perked up over the $69 mark, which saw the pairing ease back to 1.2079 lows. The CAD has consolidated gains seen this year, though remains within reach of its 6-year highs versus the USD seen last week. With commodity and oil prices set to maintain gains through the year, USD-CAD directional risk continues to be to the downside.