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By XE Market Analysis March 3, 2021 3:01 pm
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    XE Market Analysis: Asia - Mar 03, 2021

    The Dollar was largely range bound through the N.Y. session on Wednesday, pushing slightly higher overall in morning trade, later fading some before steadying near mid-range. There was little FX reaction to the incoming data, where the ADP jobs report missed the mark, while the services ISM was light of expectations as well. Surging Treasury yields weighed on equities, with tech stock weakness pressuring the NASDAQ in particular. Later in the session, the Fed's Beige Book was released, and said that the economy expanded "modestly," the usual characterization. The word appeared 69 times, but had little impact on markets. Thursday's U.S. calendar reveals weekly jobless claims, factory orders, and revised productivity.

    [EUR, USD]
    EUR-USD bottomed at 1.2043 in early N.Y. trade, coming from 1.2113 highs seen in London. The pairing subsequently headed back to 1.280 N.Y. highs following the softer ADP jobs report. Risk-off conditions remained relatively modest, which likely limited early USD gains. Bigger picture, with the U.S. economy opening at an increased rate, and U.S. vaccine rollout progressing at a clip of about three-times better than Europe, the USD may still have the upper hand against the Euro, at least until it becomes clearer whether or not the recent spike in U.S. yields implies higher growth, or higher inflation.

    [USD, JPY]
    USD-JPY eased back from seven-month highs of 107.15, later bottoming at 106.85 into the London close. The rally came on the back of surging U.S. Treasury yields, which USD-JPY is generally sensitive to. The pairing later gave back the 107.00 handle on reports of Japanese exporter offers lined up over the figure, perhaps to as high as 107.25. This likely prompted some general position squaring, though that appears to have run its course, with the pairing since heading back over 106.95. Do higher U.S. yields mean solid economic growth to come, or do they mean higher inflation. So far, it remains unclear, but one outcome will ultimately support the USD, and the other won't.

    [GBP, USD]
    Cable headed lower into the N.Y. open, falling from 1.3987 to 1.3943 early on, then bottoming at 1.3921 at mid-morning. The pairing subsequently headed back to 1.3990 into the London close. The UK government presented its budget for the new fiscal year, which extended costly pandemic support measures to individuals and businesses, and was accompanied by upgraded forecasts from the independent Office for Budget Responsibility, which gave the pound a lift, albeit a short-lived one. The government also signaled higher corporate taxes are on the horizon, in 2023. For data, The final UK February composite PMI was revised fractionally lower, to 49.6 in the headline reading, down from the preliminary estimate of 49.8.

    [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 has firmed up from London lows of 1.2593, topping at 1.2659 in early North America. A recovering DXY in morning trade supported the pairing, while firmer oil prices limited gains. Later, as the Greenback faded, and as oil prices headed up toward the $62.00 mark, USD-CAD eased back to near 1.2605. The next upside USD-CAD target is 1.2671, representing the 20-day moving average. Support is at 1.2587, last Friday's low.

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