XE Market Analysis: Asia - Jun 03, 2021

The Dollar firmed across the board in N.Y. on Thursday, with stronger data and firmer yields driving the DXY to three-week highs of 90.55, up from 89.92 lows seen into the open. A much better ADP private payrolls print got the ball rolling, while pandemic lows in initial jobless claims, and a bump up in the services ISM helped USD sentiment as well. The firmer prices paid component stirred up inflation concerns, which helped yields higher. Friday will be all about the May BLS employment report, where upside risk to our NFP estimate of 700k remain following today's strong ADP report.

[EUR, USD]
EUR-USD fell to its lowest level since May 14, bottoming at 1.2120, and down from near 1.2210 into the open. Good U.S. data today weighed on the pairing, while firmed up yields have helped the USD as well. The cutting of short Dollar position and/or implementation of fresh longs appears to have been a factor into Friday's employment report, especially following Thursday's blowout ADP jobs print. The next EUR-USD support is at the psych 1.2100 level, with the May 14 low of 1.2071 the next downside target from there.

[USD, JPY]
USD-JPY peaked at 110.31, a two-month high, up from pre-opening lows of 109.63. Generally stronger U.S. data supported the USD overall, while firmer Treasury yields have helped the rate sensitive pairing as well. The uptick in the prices paid component of the services ISM bumped up inflation concerns again, and has kept yields rising through the session. The outsized ADP job gains meanwhile, increased upside risk for Friday's NFP outcome, with a better print on the BLS report likely to give the Dollar further support.

[GBP, USD]
Cable succumbed to Dollar strength in N.Y., falling from 1.4203 into the open, to 1.4092 into the London close, following the strong round of U.S. data. The UK's final May composite PMI, released earlier today, was unexpectedly revised higher, to 62.9 from the preliminary estimate of 62.0. The headline is a new record high for the data series going back to January 1998. The prognosis for the months ahead is looking good. While there has been a creep higher in new Covid cases in the UK, which has caused the prime minister to publicly ruminate that the fourth and final phase of the government's "roadmap" to reopening, scheduled for June 21, might be delayed, there are good grounds to expect this won't develop into a full-blown wave. As a result, we retain an overall bullish view on the pound.

[USD, CHF]
The SNB continues to maintain its expansionary policy stance. The statement stressed that the pandemic "is continuing to have a strong adverse effect on the economy", adding that despite the "recent weakening, the Swiss franc remains highly valued" and against that background the policy rate was held at -0.75% and the bank stressed that "it remains willing to intervene in the foreign exchange market as necessary". The bank will also continue to supply the banking system with liquidity on "generous" terms. Nothing really new there, despite the fact that the SNB lifted its conditional inflation forecast on the back of higher oil prices and a weaker CHF. EUR-CHF briefly topped the key 110.00 mark for the first time in nearly two-weeks, though quickly turned lower, bottoming at 109.56, as the 50-day moving average at 1.1005 provided resistance.

[USD, CAD]
USD-CAD headed to 1.2088 highs following the mix of U.S. data, up from overnight lows of 1.2031. The USD overall got a boost from the better ADP jobs outcome and lower initial jobless claims, though early on, USD-CAD upside was limited by higher oil prices, seeing WTI crude trade to 32-month highs overnight. Later, a downdraft in oil prices saw USD-CAD climb to 1.2120, a one-week high. Ahead of Friday's twin U.S./Canada employment reports, USD-CAD can be expected to consolidate.