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By XE Market Analysis February 26, 2021 3:26 pm
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    XE Market Analysis: Asia - Feb 26, 2021

    The DXY to 90.92 highs in N.Y. on Friday, a seven-session peak, and up from overnight lows of 90.13. The Greenback reversed Thursday's losses, which came on the back of inflation fears, driven by surging Treasury yields. Since then, the market calmed some, with the USD advancing on those same higher yields. Incoming data was supportive, as personal income and consumption rose more than expected. The FX market remains uncertain on general USD direction going forward. Improving vaccine rollout may ultimately help the USD's fortune as the economy opens faster, though massive stimulus, while a boost for the economy, will ramp up inflation concerns, perhaps ultimately weighing on the Dollar.

    [EUR, USD]
    EUR-USD traded to seven-session lows of 1.2072, after printing near two-month highs of 1.2243 on Thursday. The pairing slipped under its 20-day moving average, currently at 1.2096, for the first time in a week. Following Thursday's USD sell-off, largely led by inflation fears which rose with the spike in Treasury yields, the Greenback appeared to have been boosted by those same high yields on Friday. That, along with Dollar short covering has weighed on EUR-USD into the weekend.

    [USD, JPY]
    USD-JPY printed six-month highs of 106.69, up from overnight lows of 105.93. The pairing's rally came as the Dollar overall moved higher following Thursday's inflation fear related sell-off. The DXY has ticked up to seven-session highs of 90.82, after printing a near two-month low of 89.68 yesterday. The interest rate sensitive pairing has climbed as U.S. 10-year Treasury yields headed to one-year higher, up around60 basis points on the year. 10-year JGB rates are at year highs as well, but up just about 16 basis points since the start of the year, currently at 0.18%. 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.

    [GBP, USD]
    Cable fell to seven-session lows of 1.3888 ahead of the N.Y. open, subsequently steadying on either side of the 1.3950 mark through the day. A risk-off overnight session pushed the Pound lower, after outperforming earlier in the week. The U.K.'s head start on the vaccine front should continuer to support Sterling going forward, which has the potential to see the UK become restriction free by June, assuming the vaccination program remains on track and that new variants don't throw a spanner in the works.

    [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.

    [USD, CAD]
    USD-CAD rebounded smartly from the three-year lows of 1.2468 printed on Thursday, touching six-session highs of 1.2730in afternoon trade. A pick-up in the USD's fortunes Friday, along with a $2 drop in WTI crude prices from Thursday's trend high prompted a round of USD-CAD short covering into the weekend. The 20-day moving average, currently at 1.2693 is the next resistance level, with the overnight low of 1.2587 providing support.

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