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By XE Market Analysis February 10, 2021 2:35 pm
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    XE Market Analysis: Asia - Feb 10, 2021

    After touching two-week lows of 90.25 overnight, the DXY recovered to 90.48 ahead of the open, before settling into a narrow range through much of the session. A cooler U.S. January CPI outcome weighed on the USD broadly, though following four days of selling, the urgency to ditch the Dollar calmed. The double-edged sword of the impending stimulus bill has not yet been sorted out, and at this stage, it remains unclear whether stimulus will be USD positive or negative, with growth likely to surge, a positive, though inflationary pressures potentially building, a negative. Wall Street headed back under highs, as profit taking manifested after the main indices saw yet another round of all time peaks this morning. The backdrop remains broadly supportive, with encouraging developments on the virus and vaccine, expectations that $1.9 tln in stimulus will be passed soon and an upbeat earnings season supporting still lofty valuations for equities. Treasury yields moved lower on the session.

    [EUR, USD]
    EUR-USD steadied off of its earlier eight-session high of 1.2144, ranging between 1.2123 and 1.2140 since the cooler U.S. CPI outcome. The pairing bottomed at 1.2114 at the N.Y. open. Dollar selling urgency has subsided following four sessions of selling, which had largely been due to overbought conditions, and more recently a surge in Bitcoin prices, soft inflation data, and easing Treasury yields. Market talk on impact on the USD from the massive stimulus package has gone both ways, one being the stimulus would supercharge U.S. economic growth, supporting the Dollar, while the other side of the coin is the stimulus will lead to ramped up inflation, resulting in deeper negative real interest rates in the U.S., as the Fed keeps a cap on nominal rates, a negative for the Greenback. Note, Bank of America on Tuesday lowered its EUR-USD year-end target to 1.1500.

    [USD, JPY]
    USD-JPY has recovered moderately from the near two-week low of 104.41 printed overnight, subsequently rallying to 104.84 highs, though since falling back to 104.54 in the aftermath of the cooler U.S. CPI outcome. The pairing remains well below the four-month high of 105.77 seen last Friday. Losses since then came on the failure to close above its 200-day moving average on Thursday, Friday and Monday, along with broad USD weakness seen since then. Slippage in U.S. Treasury yields this morning later limited USD-JPY gains to 104.72.

    [GBP, USD]
    Cable hit a fresh 34-month peak at 1.3856, mostly on the back of dollar weakness, though the pound also managed a five-day high against the euro, and a two-day peak versus the yen. The outperformance reflects several things: the passing of over four years of Brexit uncertainty, which should lead to a revival in business investment; and the UK's ahead-of-the-pack Covid vaccination program, which should enable the government to make a start on opening the economy before some peers, particularly the EU. Both sterling and UK gilt yields were elevated last week after the BoE's more upbeat than expected guidance, which laid to rest any lingering expectations that the negative interest rate option would likely be implemented.

    [USD, CHF]
    The SNB maintained policy settings in December and reaffirmed once again that it will use direct intervention on currency markets to keep a lid on the "highly valued" currency, despite the fact that the U.S. now official labels Switzerland as currency manipulator. There was no real surprise in the statement, with the central bank highlighting that Covid-19 is "continuing to have a strong adverse effect on the economy". The bank expects consumer prices to fall sharply this year and to stay around zero over the next two years, also thanks to a strong CHF. To start the year, EUR-CHF pulled back under the 1.0800 level, which had provided good support for much of December. The cross dipped to near two-week lows of 1.0787 in N.Y. on Wednesday, as risk taking levels pulled back.

    [USD, CAD]
    USD-CAD continues to be driven by ever higher oil prices, and an abrupt turnaround in the Greenback's fortunes since late last week. The pairing hit three-week lows of 1.2675 in London morning trade, later rallying to 1.2710 highs, before falling to 1.2668 following the cooler U.S. CPI outcome. The DYX printed better than two-week lows of 90.25 overnight, down from 91.60 as recently as last Friday. WTI crude meanwhile, has printed eight-consecutive sessions of higher daily highs, rallying from $51.64 to $58.77 during that time period. The January 22 low of 1.2635 is the next downside target, with resistance at the 20-day moving average of 1.2742.

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