XE Market Analysis: Asia - Jun 17, 2021
The Dollar for the most part continued its post-FOMC rally, taking the DXY to two-month highs of 92.01. Ahead of the Fed on Wednesday, the index was trading at 90.54. The prospects of more interest rate hikes sooner, along with ramped up growth and inflation forecasts, should keep the USD underpinned for now. Incoming data on Thursday disappointed, but had little negative impact on the Greenback. Initial and continuing jobless claims were higher than expected, while the Philly Fed index was a bit shy of forecasts, and leading indicators were about in line. Treasury yields plunged, unwinding yesterday's post-fed gains, while Wall Street was mixed, leaving the NASDAQ to outperform on the back of lower interest rates. Friday's U.S. calendar is empty to end the week.
EUR-USD ranged between 1.2128 and 1.2110 since the N.Y. open, as traders remain sidelined into the FOMC announcement. The pairing later sliced through its 50-day moving average at 1.2106 following the Fed, and took the Euro to under 1.2010, a one-month low. The Fed's dot plot indicated potentially more rate hikes sooner, supportive of the USD. Upgraded economic forecasts gave the Greenback a lift as well.
USD-JPY faded to 110.19 lows, after peaking at better than two-month highs of 110.82 overnight. The Dollar overall has held up well since the more hawkish FOMC outcome on Wednesday, though USD-JPY has underperformed. The pullback in U.S. Treasury yields today appears to have weighed on the yield-sensitive pairing, as the 10-year note sheds 5 bps to under 1.52%. The rate had been as high as 1.594% immediately after the FOMC announcement on Wednesday. In addition, position squaring of USD longs from multi-month highs may be a factor today, as the market pares exposure ahead of tonight's BoJ policy announcement. The BoJ is expected to extend its Covid relief measures, initially set to expire at the end of September by six-months. USD-JPY support is now at the psych 110.00 level.
Cable extended to a fresh six-week low at 1.3896 on the back of broad dollar gains following the Fed's decision to shift its thinking to a more hawkish bent, upgrading growth and inflation forecasts, and bringing closer the scope and timing of rate hikes. Wednesday's Fed developments may have brought about a sea change over USD sentiment for the tome being. Though being downplayed by many, it appears the Pound may under some pressure due to the worsening Covid back drop in the U.K.. The pushing back of full reopening, along with rising cases and hospializations may continue to weigh on the Sterling, at least at the margins. GBP-USD resistance is now at 1.3937, which represents the 100-day moving average.
The Swiss National Bank was on hold at its June meeting. Overall policy settings remain unchanged and the SNB remains committed to ensure generous liquidity supply and low rates, while keeping a lid on the CHF by intervening in currency markets. Like elsewhere in Europe, the growth outlook has improved somewhat and officials expect strong growth in the second and third quarters, but for now uncertainty remains high, though with inflation still very low, the SNB can afford to take a very gradual approach, while relying on the countercyclical capital buffer to keep risks from real estate bubbles under control.
USD-CAD topped at near two-month highs of 1.2378 after the London close, up from overnight lows of 1.2263, and from pre-FOMC lows of 1.2157. The USD rallied broadly following the Fed's start to address the pick-up in the U.S. economy and the acceleration in inflation, finally beginning to discuss the path of QE to some degree. Modestly lower oil prices, as a result of Greenback strength, has also supported USD-CAD at the margins. The BoC tapered its QE program to C$3.0 bln from C$4.0 bln at its last meeting, which saw the CAD rally. Expectations now call for another C$ 1.0 bln taper at the July meeting, bringing QE levels to C$ 2.0 bln in total. Another C$1.0 bln cut is likely by the end of the year. As a result, current USD-CAD strength is likely to fade as we look forward, as the BoC takes tangible steps to rein in accommodation, while the Fed is just getting started talking about tapering.
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