XE Market Analysis: Asia - Jun 14, 2021

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The Dollar was mixed in N.Y., though remained inside of relatively narrow trading ranges. The DXY topped at 90.53 early in the session, later hitting at low of 90.41 before steadying near 90.45. There was no data to drive markets on Monday. Focus has shifted to Wednesday's FOMC meeting and press conference, where risks are for a less dovish, more hawkish spin: yields cheapened on Monday as the FOMC comes into focus. After last week's rally that knocked longer rates to better than 3-month lows, bonds are highly susceptible to a hawkish twist from this week's meeting. With the Fed already in an ultra-accommodative stance, it will be nearly impossible for policy to be more dovish. Risks are for a hawkish "surprise" with the potential that the Committee acknowledges it has begun taper talks. As a result, we see upside risk for the USD later in the week. Wall Street was mixed, leaving the NASDAQ up modestly and the DJIA under water. The U.S. calendar picks up on Tuesday, and features May retail sales, May PPI, May industrial production, May capacity use, the June Empire State index, and April business inventories.

EUR-USD held this morning's modest gains, as it bounced from opening levels near 1.2110, topping at 1.2131 at mid-morning. Short covering from Friday's fall to one-month lows of 1.2093 was a driver on Monday, though ahead of what could be a more hawkish than expected FOMC announcement and press conference on Wednesday, we look for Euro gains to top put between now and then. Treasury yields ticked a bit higher on Monday, as risks are for a hawkish "surprise" with the potential that the Committee acknowledges it has begun taper talks. For EUR-USD, the 50-day moving average at 1.2096 is the firs downside target.

USD-JPY outperformed on Monday, rising to seven-session highs of 109.95, and up from 109.62 into the open. A modest uptick in Treasury yields has been supportive of the rate-sensitive pairing this morning, following the steep yield declines seen last week. The FOMC announcement on Wednesday will be key, and USD-JPY's current strength may be a sign the FX market is looking for a less-dovish outcome. It is likely Chair Powell will be asked if QE tapering was discussed at the meeting at his press conference, and we the think the answer to that will be a "yes". If so, yields, and USD-JPY are likely to press higher.

GBP-USD recovered some after earlier printing a one-month low of 1.4070. The pairing later topped at 1.4124 in early N.Y. trade. Upside momentum has waned in the recent phase, and the prevailing bias looks to have shifted to the downside. A breach of 1.4070 would imply technical potential for a move to 1.3900. Markets are presently speculating that UK PM Johnson is about to announce a one-month delay in the final reopening phase from Covid-related lockdown measures, which is scheduled for June 21. This won't be anything like the draconian lockdown measures taken in the past, but will mean that theatres and nightclubs, and other events involving large indoor gatherings, will have to remain closed, a Sterling negative, at least on the margins. This week's UK calendar brings the latest BoE data on monthly lending and money supply, May inflation data, and May retail sales. Markets are discounting a rise in headline CPI to 1.8% y/y from 1.5%, with core CPI lifting to 1.5% y/y from 1.3%.

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 on June 1, though since then has faded, bottoming at 1.0875 on Friday, right at its 200-day moving average.

USD-CAD was rangebound to start the week, though has remained under Friday's one-month high of 1.2177. Higher oil prices have seen the pairing slip from 1.2172 to under 1.2130 since the North American open, as WTI crude touched new 32-month highs of $71.78. The USD in the meantime, headed to N.Y. session lows against the EUR and GDP, which has dragged down the DXY to intra day lows of 90.43, putting some downward pressure on USD-CAD in the process. The pairing showed little reaction to the soft Canadian April manufacturing data, though the figures are quite backwards looking, and were largely overlooked.

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