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By XE Market Analysis February 19, 2021 2:46 pm
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    XE Market Analysis: Asia - Feb 19, 2021

    The Dollar index stumbled in the London morning session, hitting a low in early N.Y. before rebounding modestly. The index approached the three-week low of 90.12 seen on Tuesday, later topping at 90.65. Rising price pressures in the Markit PMI reports lifted yields, which provided support to the USD, as did pre-weekend short covering. Incoming U.S. data was light, and revealed a near in-line outcome for January existing home sales. Wall Street started on a strong footing on Friday, maintaining modest gains through the morning session, before stumbling some into the close. Incoming U.S. data was light, and revealed a near in-line outcome for January exiting home sales. Stimulus hopes, improvements in the Covid vaccine rollout, along with sharply lower new cases over the past two weeks largely kept stocks supported.

    [EUR, USD]
    EUR-USD topped at four-session highs of 1.2145 ahead of the N.Y. open on Friday, later bottoming under 1.2110. The USD generally perked up some in afternoon trade, as Wall Street squandered early gains. Bigger picture, firmer the upcoming massive $1.9 tln U.S. fiscal spending spree in the U.S. is naturally causing markets to consider inflationary consequences and the associated possibility of the Fed being forced to tighten policy sooner than is generally being considered, despite the Fed's pledge to let inflation run higher in this cycle than it would have normally done. This may keep a cap on EUR-USD for now. In addition, the slow rollout of Covid vaccines in Europe, versus the improving vaccination picture in the U.S. may keep the U.S. economic recovery outlook in favor of the USD.

    [USD, JPY]
    USD-JPY recovered some from opening lows of 105.24, later topping at 105.67 ahead of the London close. As is often the case following a week of losses, pre-weekend short covering was a feature on Friday. The yields sensitive pairing also found some support from firmer Treasury yields, which have been on the rise of late due to increasing inflation concerns. In addition, buyers stepped in under the 200-day moving average, which sits at 105.52. A close above the level could result in some follow through buying when the Asian session kicks off on Monday.

    [GBP, USD]
    Cable rallied to levels last seen in mid-April, 2018, peaking at 1.4036, up from 1.3951 lows seen in Asia. Recent gains have been fueled by a mixture of broader dollar softness and broader pound outperformance. UK stock markets are also up over this period, including the indices that track smaller cap companies whose incomes are generated domestically, and not just the global operators that dominate the larger cap indices, such as the FTSE 100. The UK's preliminary February composite PMI, released earlier today, smashed expectations, rising to a two-month high of 49.8 headline from the 41.2 reading that was seen in January, despite the ongoing UK-wide Covid lockdown. The rapid and so far efficient rollout of the Covid vaccination, and 80% odd plunge in the daily new case count from the January peak, is also opening the prospect for a return toward economic and societal normalcy.

    [USD, CHF]
    Policymakers at the SNB retain an ongoing concern about the Franc's value. Unlike most central banks, the SNB explicitly incorporates the franc into monetary policy to ward off speculative purchases of the currency, which would impart deflationary forces (via cheaper imports) with the consequential impact of an unwelcome tightening in real interest rates. The central bank repeated at its latest quarterly monetary policy review that the franc remains "highly valued" and said it is ready to intervene directly in the foreign exchange market. The cross has maintained a broad about 1.0750 to 1.0850 range since the start of the year.

    [USD, CAD]
    USD-CAD has dipped to near one-month lows of 1.2594, despite the pullback in oil prices, and weaker Canada retail sales, which were constrained by Covid related lockdowns. General USD malaise kept the pairing down through the morning, as the DXY headed toward its lowest of the week. The risk backdrop has improved some as well, with U.S. equities trading moderately higher. This helped the CAD as well. Later as risk appetite waned, as as the USD recovered marginally into the weekend, USD-CAD ran up to test 1.2630. Next USD-CAD support comes at the January 21 base of 1.2589, which was the lowest seen since April of 2018.

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