XE Market Analysis: Asia - Jun 22, 2021

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The Dollar was largely rangebound in N.Y. on Tuesday, though ultimately headed slightly lower. The DXY topped at 92.13 early, later hitting a low of 89.76. Trade was light ahead of Fed Chair Powell's testimony, though based on his published written remarks, he should not stray from his recent stance on employment and inflation. Incoming data saw existing home sales and the Richmond Fed index beat expectations, though neither had much impact on the USD. Wall Street was modestly higher, while Treasury yields were little changed. Overall, the Greenback should continue to consolidate recent moves this week. Wednesday's U.S. calendar features Q1 current account figures, with the deficit expected to widen to $207.1 bln from %188.5 bln in Q4. Flash Markit June manufacturing and services PMIs are due, along with May new home sales, which are seen at a 0.880 mln pace, up from 0.863 mln in April.

EUR-USD managed four-session highs of 1.1930, up from early session lows of 1.1882. The Dollar overall has been in consolidation mode on Tuesday, after rising sharply last week post-FOMC, and giving back some of those gains on Monday. Traders remain close to the sidelines ahead of Fed Chair Powell's testimony at 14:00 ET, though his written testimony did not discuss policy per se. We do not expect him to stray from his recent stance on employment and inflation during Q&A. For EUR-USD, further consolidation of recent moves can be expected for the near term.

USD-JPY is approaching two-plus month high territory, topping at 110.79 in late morning trade, just under last week's peak of 110.82. A more or less risk-on backdrop has been supportive, though ranges have been narrow since the open. The Nikkei posted 3% gains overnight, while Wall Street has kept Monday's gains, if only adding slightly to them on Tuesday. The Dollar's yield advantage over the Yen has kept the pairing underpinned as well, as the Yen remains a solid carry instrument. Above Thursday's two-month top, the market will look to 2021 highs of 110.97 seen on March 31.

Cable rallied out of Monday lows, bottoming at 1.3860 into the open, later topping at 1.3943 after the London close. Traders appear to be having a second look at BoE tightening prospects at its policy review this week. We don't expect any changes in policy with basically the same stance as seen in May, including a unanimous vote on maintaining the 0.10% repo rate and another 8-1 vote on QE with Haldane, who is leaving the MPC, again dissenting if favour of lowering the size of the quantitative easing program. MPC member Vlieghe has stated that policymakers are waiting to see how the labor market transitions out of the government's pandemic support measures before making any significant decisions on policy. We anticipate that GBP-USD will remain on an overall steady-to-softening bias.

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 edged lower, bottoming at 1.2320 in afternoon trade after peaking at 1.2403 in early North American dealings. Firm oil prices kept a cap on the pairing, as WTI crude hit 32-month highs of $73.45 earlier in the session. Action is likely to slow for USD-CAD into Wednesday's April Canada retail sales data. Our projection is for sales to plunge -5.1% in April after the 3.6% bounce in March as a return of restrictions weighed on consumption. The ex-autos sales aggregate is projected at down -5.0% after the 4.3% pop in March. An as-expected report would likely be taken in stride, as vaccinations rates have improved and restrictions have been relaxed since then. USD-CAD support is at Monday's 1.2353 low, with resistance at the 100-day moving average at 1.2914.

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