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By XE Market Analysis February 25, 2021 2:54 pm
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    XE Market Analysis: Asia - Feb 25, 2021

    The DXY printed fresh seven-week lows of 89.68 in N.Y. morning trade on Thursday, despite better U.S. data, which included lower than expected jobless claims, an in-line Q4 GDP revision, and a surge in durable orders. The data had little impact on the Dollar, as focus remained on inflation, with higher Treasury yields being read as more a function of inflation fears, than growth expectations. Higher inflation without accompanying monetary tightening, as the Fed remains in lower for longer mode, likely weighed down the USD. Later in the session, as yields broke to new one-year highs, the USD rallied some on short covering, after the 10-year yield pierced above the 1.50% level. The DXY recovered to 90.25 highs into the close. Wall Street traded sharply lower, again as inflation fears weighed.

    [EUR, USD]
    EUR-USD rallied from overnight lows of 1.2157 in Asia, to 1.2243 one-month highs in N.Y. morning trade. The Dollar was largely under pressure through the session, despite higher Treasury yields, which are being read as more a function of inflation fears, than growth expectations. Higher inflation without accompanying monetary tightening, as the Fed remains in lower for longer mode, has weighed down the USD. For EUR-USD, the 50-day moving average at 1.2156 is the next support level, with resistance at the January high of 1.2285. The piainr later eased to 1.2160 on position squaring.

    [USD, JPY]
    USD-JPY has bucked the largely lower Dollar backdrop seen on Thursday, rallying to five-plus month highs of 106.40 in afternoon trade, up from overnight lows of 105.85. The risk and interest rate sensitive pairing climbed as U.S. 10-year Treasury yields headed to one-year highs over 1.50%, up around 13 basis points on the session and over 60 basis points on the year. 10-year JGB rates were at year highs as well, but up just about 12 basis points since the start of the year, currently at 0.14%. The rate differential has moved sharply in the USD's favor, and has been a major factor in USD-JPY's rise from 102.60 in early January to today's peak near 106.30. Today's risk off conditions likely weighed on the Yen as well.

    [GBP, USD]
    Cable topped at 1.4182 in N.Y. morning trade, and after being unable to come close to Wednesday's trend high of 1.4243, turned lower into the London close, bottoming at 1.4000. Given the run up in the pairing lately, which featured five-straight days of higher daily highs, profit taking was a likely driver on Thursday. We saw today's dip as a temporary move, as the U.K.'s vaccination program continues to outperform most countries in the world. This should allow the U.K. economy to extract itself from lockdowns faster, which should remina Sterling-positive going forward.

    [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 Thursday broke to a 19-month high of 1.1098 high, with the franc set to underperform on improved hopes for global economic recovery, as Covid vaccines are rolled out. The move higher over the past couple of session has likely been exacerbated by squeezing of entrenched short positions. The cross later pulled back to 1.1015 as risk-off conditions accelerated.

    [USD, CAD]
    USD-CAD slid to a three-year low of 1.2468, down from overnight highs of 1.2521, and Wednesday's top at 1.2599. The usual factors were behind the CAD's strong performance, including 14-month highs in WTI crude seen on Thursday, and a six-week low for the DXY. The pairing later headed back toward the 1.2570 mark, the move initially a combination of softer oil prices and short covering from trend lows as oil prices shed about $1/bbl to $62.65 lows. WTI crude recovered to trend highs near $64.00 in afternoon trade, though USD-CAD maintained near highs into the close likely as U.S. yields exploded higher.

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