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By XE Market Analysis April 1, 2021 1:12 pm
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    XE Market Analysis: Asia - Apr 01, 2021

    After failing to make a fresh trend high, the DXY pulled back on Thursday, taking the index from overnight highs of 93.33 to 92.88 after the London close. A pullback in Treasury yields, along with position squaring into what will be a long weekend for many, were the likely drivers of USD softness. On the data front, a solid ADP jobs report, along with a sharp jump in the manufacturing PMI didn't help the Greenback, but buoyed Wall Street sentiment. The S%P 500 crossed above the 4k mark for the first time, while the drop in rates saw the NASDAQ outperform. Europe will be on holiday Friday, while Wall Street will be closed, and the Treasury market will close early. Nonetheless, the BLS employment report will be released. We look for a 500k increase in non-farm payrolls.

    [EUR, USD]
    EUR-USD has been on the rise since the London open, with a good chunk of buying seen into the European close, ahead of what will be a four-day weekend for many. The pairing rallied from overnight lows of 1.1713 to 1.1775 at the London close. Short covering has been the likely driver, following better than a week of EUR-USD losses. We continue to look for a weaker Euro in the coming days and weeks, as Covid continues to see countries locked down, and economic activity subdued. In addition, the Dollar enjoys a big interest rate advantage over the EUR, which will continue to support the Dollar.

    [USD, JPY]
    USD-JPY has come under some pressure, as has the Dollar generally, resulting in a low of 110.55, down from overnight highs of 110.80, which broke the streak of five-consecutive sessions of higher daily highs, and higher daily lows. Softer Treasury yields likely prompted some position squaring, while the failure to take out the 111.00 level Wednesday and today resulted in some profit taking from the sharp rise seen over the past week or so. From here, support is at 110.00, with resistance at 111.00.

    [GBP, USD]
    GBP-USD was near 1.3760 ahead of the open, after bottoming at 1.3746 in London. The pairing later made its way to 1.3837 highs, as the USD overall came under some pressure, as U.S. yields pulled back. Ahead of the open, there was little impact from the unexpected upward revision to the final UK manufacturing PMI report for March, which came in the highest reading in over a decade, at 58.9. Improving economics in the U.K, along with the efficent Covid vaccine rollout there, should continue to underpin the Pound generally.

    [USD, CHF]
    The SNB maintained 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. However, the new forecasts, which project average price increases of 0.2% this year, 0.4% for 2022 and 0.5% for 2023 are clearly nothing that would force the SNB to abandon the very expansionary policy. Looking forward the SNB's baseline scenario expects a gradual easing of virus restrictions in coming months and the forecast for overall growth this year remains at 2.5-3.0%. However, the SNB highlighted ongoing uncertainty, and warned that against the background of ongoing increases in mortgage lending and residential property prices this market remains vulnerable and "continues to present a risk for financial stability"

    [USD, CAD]
    USD-CAD was lower through the session, following the USD's general downward path. The drop in U.S. Treasury yields, and general position squaring ahead of the Long Easter weekend, were the likely drivers of USD softness on Thursday. USD-CAD opened at highs of 1.2596, later heading to lows near 1.2550. Oil prices fell in late morning on reports OPEC+ would increase production this summer, which briefly provided some support to USD-CAD, though a subsequent rally in WTI crude allowed the CAD to firm up again.

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