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By XE Market Analysis April 28, 2021 3:15 pm
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    XE Market Analysis: Asia - Apr 28, 2021

    The Dollar eased some in NY. on Wednesday, though trade was on the light side ahead of the 14:00 ET FOMC announcement. The DXY slipped to near recent lows, bottoming at 90.80 from early highs of 91.08. Wall Street was mixed ahead of the Fed, while yields firmed up marginally. The Dollar ticked briefly higher following the FOMC announcement, where there was no change to policy, as expected, though quickly reverted to unchanged, then slightly lower. EUR-USD bounced between 1.2066 and 1.2094, while USD-JPY bumped around between 109.00 and 108.85. The statement noted "the path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain". In a more upbeat tone though, the the statement said "progress on vaccinations and strong policy support" are helping strengthen economic indicators, including employment. QE purchases remained unchanged at $80.0 bln/month for Treasuries, and $40 bln/month for MBSs. Thursday's U.S. calendar features the Q1 advance GDP report is due, where we expect a 5.6% growth clip, versus 4.3% in Q4. Q1 chain prices are set to rise to 3.8% from 2.0% previously. Weekly jobless claims are due, with initial claims seen rising 53k to 600k, and continuing claims expected to fall 84k to 3.590 mln. The March pending home sales index is forecast to jump to 113.6 from 110.3.

    [EUR, USD]
    EUR-USD rallied to 1.2103 highs, so far staying under Monday's two-month high of 1.2117, but up from 1.2056 lows seen in the London morning session, where the pairing found support ahead of the 100-day moving average at 1.2055. The Dollar has come under broad pressure ahead of the FOMC announcement, in relatively light trade. U.S. inflation concerns remain, and eventually U.S. yields will need to rise. This is when the EUR-USD rally seen through April will likely come to an end.

    [USD, JPY]
    USD-JPY peaked at better than two-week highs of 109.08, after closing above its 50-day moving average at 108.37 on Tuesday, for the first time since January. The BoJ trimmed inflation forecasts following its policy meeting earlier in the week, which has kept pressure on the Yen. In Japan, the third state of emergency to contain Covid cases, just months away from hosting the Olympics has weighed on the JPY as well. The April 14 high of 109.10 marks the next resistance level.

    [GBP, USD]
    Cable put in an inside session on Wednesday, ranging between 1.3861 and 1.3923 on an intra day basis, and hitting its high in Late Morning N.Y. trade, as the Dollar came under broad pressure. We retain a bullish view on the pound against the euro, and more especially the low-yielding currencies of surplus economies, such as Japan and Switzerland, which is hinged on the expectation that the global pandemic recovery trade will continue into 2022. Versus the USD, the Pound is liable to struggle, as U.S. growth can be expected to outpace that of the U.K., with Treasury yields liable to head higher as well as inflation concerns persist.

    [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. EUR-CHF had held above the key 110.00 level for over a month, before dipping under the level from April 9 to 13, printing a better than one-month low of 1.0975 before reclaiming the 1.10 handle again, and touching a three-week high of 1.1071 on Monday.

    [USD, CAD]
    USD-CAD printed three-plus year lows of 1.2330 in North American morning trade, down from London highs of 1.2418. The combination of better than expected Canada retail sales, better than one-month highs in WTI crude oil prices, and a generally soft USD drove the pairing lower. In addition, the BoC's QE tapering announcement had taken USD-CAD's trading band down a notch. Improving vaccine rollout in Canada, along with the case curve appearing to turn lower has been supportive of the CAD at the margins as well. The 1.2248 low seen in late January of 2018 is the next downside target.

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