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By XE Market Analysis March 1, 2021 2:28 pm
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    XE Market Analysis: Asia - Mar 01, 2021

    The DXY rallied to near three-week highs in N.Y. on Monday, after rallying out of 90.69 lows overnight. A calmer backdrop in the Bond market, and an easing of inflation fears ultimately allowed the index to rally some, following last week's near two-week lows. A better than expected manufacturing ISM, along with a sharply higher construction spending print supported the USD as well. Wall Street soared higher, taking its cue from a relative stabilization in the Bond markets, following last week's melt-up in yields. The start of distribution of Johnson & Johnson's Covid vaccine, which according to some in the medical community will be a "game changer" supported as well. Treasury yields were narrowly mixed.

    [EUR, USD]
    EUR-USD fell to near two-week lows of 1.2028 at mid-morning in N.Y., down from overnight highs of 1.2101. The pairing moved to lows following the better manufacturing ISM outcome. From there, the pairing headed back toward 1.2060 into the London close. The jury remains out on EUR-USD direction going forward, but dovish noises from the ECB, including Monday's comments from Villeroy calling for an active use of PEPP purchases and flagging the possibility of a deposit rate cut, combined with the likely massive stimulus set to be passed in Congress, could keep the Greenback supported. A huge boost to the economy, initially at least, could draw foreign investment into the U.S., and could shift the Fed's uber-easing bias sooner than would otherwise be expected.

    [USD, JPY]
    USD-JPY has printed fresh six-month highs of 106.78, up from overnight lows of 106.37, and a Friday base of 105.85. USD favorable interest rate differentials continue to support the pairing, despite Treasury yields pulling back from last week's extreme highs. A sluggish Japanese economy, along with potential for a boom in the U.S. once the enormous stimulus package is rolled out, and on the approval of J&J's Covid vaccine, which Dr. Scott Gottlieb called a "game changer", should continue to support USD-JPY going forward.

    [GBP, USD]
    Cable fell from 1.3999 highs in Asia to 1.3904 in early N.Y. BoE Monetary Policy Committee member Ramsden, via an interview with the Yorkshire Post, managed to keep the idea of going negative with interest rates alive by saying that it will remain in the 'toolkit' should the anticipated economic recovery turn sour. This seemed to have offset the modest upward revision in the final release of the February manufacturing PMI survey out of the UK, and the signal from the UK government, which is preparing its annual budget, that the prospect of a strong growth rebound is limiting the need for tax rises. The prevailing decline in the pound is a correction in a overall upward trend.

    [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 held relatively firm since the overnight session, topping at 1.2737 in early Asia, and hitting a low of 1.2648 later in North American trade. The pairing found some sellers step in on the move over the 50-day moving average of 1.2729, though a generally firmer USD, and slipping oil prices limited USD-CAD downside. WTI crude was down nearly $2.00/bbl from overnight highs near $61.90, while the DXY printed near three-week highs of 91.13. USD-CAD later topped over 1.2670 as oil prices dipped briefly under the $60.00 mark.

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