The USDJPY moved to a new high for 2021 earlier today after breaking above the March 31 high of 110.96. The high price today reached 111.099.
Looking at the hourly chart below, the move above the March 31 high at 110.96 lasted for about an hour or so before failing and moving back to the downside. The corrective high price since the break lower reached 110.909 – about 5 pips below that old high. The current price is trading around 110.734. That takes the price below the June 17 high of 110.818.
The JPY weakness helping push USDJPY up through 111.00 and US 10 year yields snugged up to 1.50%. The next major test is up at 111.50 with some heavy daily resistance clustering up there. US strength should remain heading into Friday on expectations of more inflationary signs from the US PCE deflator.
The dollar is trimming losses slightly against the euro and franc but is still keeping lower against both currencies, and is now grinding a slight advance against the rest of the major currencies bloc in European morning trade.
GBP/USD has eased a little back under 1.4100 though key support is still seen closer around 1.4073-86 while AUD/USD has also slipped just below 0.7700 for now:
The latter is testing the lows from Friday but in the context of the past few weeks, none of these moves are really breaking out of range to be fair.
USD/CAD is also up a little to 1.2165 with minor resistance seen closer to 1.2170-77 before further resistance is seen at 1.2200.
I wouldn’t look too much into any of these moves for the time being unless they start to chip away at key technical levels. The FOMC meeting tomorrow still holds all the cards.
HSBC with a restrained view for RMB, looking for its appreciation to slow and prompt some range trading, not a sharp reversal.
We believe the recent comments and countercyclical measures out of China … suggest that, while there is no line in the sand, there is still a policy preference for basic stability of the RMB exchange rate.
We do not believe the recent downward momentum is the beginning of a long-term RMB appreciation trend. Cyclical indicators are pointing to a likely slowdown of GDP growth and smaller yield advantage for China in 2H21. We expect these cyclical developments to see net FX flows to China moderating in 2H21.
Broad USD weakness may be tested, if the Federal Reserve’s tapering debate picks up later in the year and some of the generous USD liquidity conditions could subside later this year. Our economists expect an official tapering announcement at the end of the year and implementation in 2022.
We think that China’s broad FX framework has not changed, namely two-way capital account liberalisation is maintained with the aim of achieving a balanced flow. Our base case sees USD/RMB exhibiting more two-way movement and then rise slightly later this year, when China’s outbound investment liberalisation accelerates, likely in 2H21.
(I bolded those Fed comments from HSBC that were part of the yuan note).
Weekly offshore yuan (USD/CNH) candles showing the appreciation trend for yuan since the middle of last year.