XE Market Analysis: Asia - Jun 30, 2021

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The Dollar rallied broadly in N.Y. on Monday, taking the DXY to two-plus month highs of 92.44, up from overnight lows of 92.00. USD short-covering appeared to be the main driver through the session, which was prompted by the better ADP jobs report, and the advent of month and quarter-end. The higher than forecast private payrolls print likely raised expectations for Friday's BLS employment report. Other incoming data on Wednesday saw pending home sales spike higher, and the Chicago PMI come in near expectations. We expect FX activity to slow into Friday's key jobs data. Thursday's U.S. calendar has weekly jobless claims, and the June manufacturing ISM, along with May construction spending and June auto sales.

EUR-USD printed 1.1845 lows, levels last seen on April 6 . The pairing had been at 1.1895 at the open. The Dollar has been mostly higher through the session, helped by the better ADP outcome, which has driven USD short covering ahead of Friday's Key BLS employment report. Short U.S. yields have remained relatively firm, with the 2-year rate 10 basis points higher in June, with potential late 2022 Fed rate hikes driving yields up. This should continue to help the USD going forward, as expectations are for the Fed to begin tightening first. In addition, U.S. economic growth is likely to handily exceed that of Europe.

USD-JPY has continued to climb modestly, hitting 111.09 highs after the London close. The 111.00 mark, had provided good resistance for over a week. Japanese exporters are reportedly still on the offer over the level, which has recently capped gains. The USD has generally firmed up on Wednesday, seeing the DXY print eight-session highs. The better ADP outcome may have lifted expectations for Friday's NFP result, helping the Greenback at the margins. USD-JPY resistance remains at 111.12, the June 24 top with support at 110.43.

Cable remained heavy, printing eight-session lows of 1.3800. A broadly higher USD was the main driver through the N.Y. session, with short covering kicking ahead of Friday's BLS employment report, and after a better ADP jobs outcome. News that the UK saw 20k-plus daily spikes in new Covid cases over the last two days, continuing a steep upward trajectory, seems to have weighed on Sterling this week, even though this has been driven by young unvaccinated adults. While hospitalizations and deaths remain relatively low, they have been on the rise. We are taking a somewhat neutral view on the pound, overall, though see downside risk in GBP-USD on the view that this week's slate of U.S. data will come in on the stronger side, especially the June payrolls report.

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 showed little reaction to the negative, but better than expected April GDP outcome, which coincided with Covid related lockdowns in Canada at the time. The outlook is much improved now, as the vaccination rollout has progressed swiftly. USD-CAD bottomed at 1.2366, down from the London top 1.2424, which was an eight-session high, with the low coinciding with WTI crude's high print of $74.12. The pairing later topped at 1.2421, as the USD advanced broadly. The 100-day moving average at 1.2394 has remained a fulcrum for USD-CAD price action on Wednesday.

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