XE Market Analysis: Asia - May 27, 2021

The Dollar firmed up in morning trade, pulled back some, then turned modestly higher at mid-session. Moves were modest, leaving the DXY inside a 90.09 to 89.92 trading range. Incoming data were mixed, seeing a miss in durable orders and pending home sales, while revised GDP was unchanged from the preliminary release, a but light of expectations. Initial jobless claims printed a pandemic low, which was mildly USD supportive. Wall Street posted modest gains on the back of the better claims data, while yields moved higher, also a Greenback positive. Friday's U.S. calendar will be of interest, featuring personal income and consumption, with the former seen down 14.0% from up 21.1%, and the latter up 0.9% from 4.2% in March. The April PCE deflator likely rose 0.6% from 0.5% previously. This indicator is closely followed by the Fed, and will be on market's radar screen given recent inflation concerns. Advance April goods trade should see the deficit widen to $93.5 bln from $90.6 bln. Advance wholesale and retail inventory figures are also due. The May Chicago PMI is penciled in at 66.0 from72.1, while the final May University of Michigan consumer sentiment index is expected to remain steady at 82.8.

[EUR, USD]
EUR-USD traded a narrow range since the N.Y. open, idling between 1.2180 and 1.2211. The pairing hit its low following the early round of U.S. data, which was mixed, though the pandemic-lows in initial jobless claims was the brightest spot. USD gains were short lived however, with EUR-USD quickly heading back over the 1.2210 mark. The failure to take out Tuesday's trend high 1.2266 on Wednesday prompted some profit taking, which resulted in a four-session low of 1.2175 seen overnight. Looking ahead, the USD is liable to continue to struggle against the Euro, with real interest rates in the EUR's favor, and with Europe's vaccine program on track now after a slow start, which will likely result in economic reopenings there on a speedier track. Should the Fed meanwhile, begin to talk taper, all bets are off for a firmer EUR-USD.

[USD, JPY]
USD-JPY rallied to near two-week highs of 109.41 ahead of the data, up from 109.09 into the open. The move higher came as Treasury yields popped up after BoE's Vlieghe suggested a rapid recovery could see rate hikes early next year, along with reports Biden's 2022 budget will aim for $6 tln in spending. The bump up in rates, along with renewed inflation concerns have underpinned the pairing. Support now is at the 50-day moving average at 109.12, with resistance at the May 17 peak of 109.50.

[GBP, USD]
Cable ran up 1.4120 to near 1.4185 ahead of the N.Y. open, following BoE's Vlieghe comments suggesting a rapid recovery could see rate hikes early next year, if the labor market recovers smoothly after the end of the furlough program. 10-year Gilts sold off lifting rates over 5 bps to 0.805%. Sterling gains followed yields higher. Cable later touched 1.4196 in late N.Y. morning trade, and has remained relatively sideways for over a week, between roughly 1.41 and 1.4250.

[USD, CHF]
Switzerland pulled out of talks with the EU on a new framework treaty Wednesday after nearly seven years of negotiation. The new treaty was meant to supersede the 100 bilateral treaties that grants Switzerland unfettered access to the EU's single market in exchange for open borders and alignment of Swiss and EU law. The expectation now is that as existing treaties lapse, barriers to trade and immigration will be thrown up. The Swiss franc weakened on the news, though has since reversed losses. Markets will be monitoring the situation closely, gauging what level of detrimental impact the development will have on Switzerland's terms of trade position, which is an important metric for an export oriented economy such as Switzerland's.

[USD, CAD]
USD-CAD is on session lows of 1.2057, down from Asian highs of 1.2142. WTI crude's break to near highs of the week, at $66.70,supported the CAD through the session. Big picture, as the pandemic recedes, and the global economy reopens, Canada will be in a good spot to benefit from commodity and oil prices that are expected to remain firm going forward. As a result, USD-CAD remains in sell-the-rally mode, and we expect a breach of this month's six-year low of 1.2013, with the next downside target being the May, 2015 low of 1.1920.