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By XE Market Analysis February 22, 2021 2:49 pm
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    XE Market Analysis: Asia - Feb 22, 2021

    The DXY fell to its lowest level since January 13, bottoming at 90.00 in N.Y. trade on Monday, down from 90.30 at the open, and the 90.57 top seen overnight. The Greenback had been on the rise overnight, as the U.S. 10-year Treasury yield hit a one-year high near 1.40%. Yields later ebbed in N.Y., leaving the 10-year under 1.34%, with bond buyers stepping in as Wall Street turned red. This weighed on the USD broadly through the session. Incoming data was light, with an about in-line leading indicators print having little market impact. The improving vaccine backdrop in the U.S., versus many countries, will likely be somewhat supportive of the Dollar, at least at the margins, as hopes for a quicker ramp-up of the economy take hold. Tuesday brings Fed chair Powell, who will give the MPR to the Senate Banking Committee.

    [EUR, USD]
    EUR-USD found support in early London trade at the 20-day moving average of 1.2093. The pairing has since traded above its 50-day moving average at 1.2153, to a high of 1.2170 after the London close. Rising inflation concerns in the U.S. have been a drag on the Dollar, though the U.S. would seem to have the upper hand versus the EU with regards to emerging from Covid lockdowns, and the economic recovery that would entail. On the vaccine front, European distribution is lagging that of the U.S. significantly, with Bloomberg data showing less that 4% of the populations of the major EU countries receiving the fist of two doses, versus 13% of the U.S. population. This ultimately may push out the timeline for European economic recovery, and could keep pressure on the Euro.

    [USD, JPY]
    USD-JPY fell from overnight highs of 105.85, bottoming at mid-morning at 105.00. The pairing later bounced slightly over 105.10, after finding buyers at the psych 105.00 level, and under the 20-day moving average at 105.01. The interest rate sensitive pairing's overnight move higher came as U.S. 10-year Treasury yields hit one-year highs of 1.394%. Since then, the yield dipped back under 1.35%, which weighed on USD-JPY. Bigger picture, U.S. inflation concerns should keep a cap on the Dollar for now, especially with the Fed in full-on easing mode, which will limit interest rate rises, even as rates elsewhere on the globe edge higher.

    [GBP, USD]
    Cable hit a new trend high 0f 1.4087 after the London close, down from overnight lows of 1.3981. UK yields have been among those showing the biggest basis point rise of late, even more than U.S. Treasuries over the last week, which has aided Cable to a new 34-month high. The UK's ahead-of-the-pack Covid vaccine program has been giving the undervalued pound an underpinning as well. With the UK nations still enduring lockdown measures, Prime Minister Johnson will later today outline a roadmap to lifting Covid restrictions, which are expected to by a cautious step-by-step approach. Vaccinations, and evidence that the program is proving effective, alongside a build up in natural herd immunity and seasonal factors bode well for reopening prospects.

    [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 on Monday broke to a 14-month high of 1.0916, with the franc set to underperform on improved hopes for global economic recovery, as Covid vaccines are rolled out.

    [USD, CAD]
    USD-CAD bounced from overnight 3-month lows of 1.2581, peaking at 1.2654 ahead of the North American open. Advancing oil prices buoyed the CAD during early Asian hours, though a round of USD-CAD short covering stepped in following the new trend low. The pairing has steadied some in early North American dealings, though with WTI crude prices approaching 3% gains on the day, and the USD largely under pressure, the near-term risk for USD-CAD would appear to be to the downside. Indeed, as WYI crude later topped at $62.00, USD-CAD eased back to 1.2595 lows.

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