GLOBAL FX STRATEGY | DAILY FX UPDATE

Friday, March 5, 2021

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USD Strengthens as US Yields Push Higher
Shaun Osborne
• USD gains ahead of NFP data as Treasury yields rise and stocks fall.
Chief FX Strategist
• CAD slips back above 1.27 but losses cushioned by firm crude, domestic yields. 416.945.4538
shaun.osborne@scotiabank.com
• EUR slips to lowest since November on rising US yields.
Juan Manuel Herrera
• GBP underperforms somewhat on the day but underlying story remains positive. FX Strategist
416.866.6781
• JPY slide extends on wide US-Japan spreads, technical momentum. juanmanuel.herrera@scotiabank.com

• AUD, NZD lead losses among majors on risk aversion.

• MXN softness extends to test 200-day MA (21.16).

FX Market Update - Stock market gauges are a sea of red to end the week,
extending the sell-off in risk assets from yesterday. Fed Chairman Powell said
nothing controversial in his comments which largely echoed previous—dovish—
remarks but the market’s response suggests disappointment that the Fed chief did
not confront the rise in long term rates and the steeper curve more directly. There is
clearly friction building between improving economic trends, which is lifting long-term
rates, the Fed’s communication strategy, which is stressing that no policy changes
are likely for some time to come, and risk assets (equity markets), which are perhaps
starting to struggle with elevated valuations. The combination of softer equities, rising
yields and a stronger USD is precisely what the Fed wants to avoid at the moment
but it is not clear that policy makers can or will to do anything about yields at the
moment. Some help for risk assets may come from the rapid deployment of
President Biden’s fiscal stimulus but it may be a bumpy ride for markets in the short
run. The USD is broadly higher ahead of NFP data (the street is looking for a 188k
rise in jobs which would help offset recent disappointments), with broader (DXY)
gains suggesting scope for a little more USD strength now the index is trading above
the early February high. The AUD and NZD leading losses among the majors. The
CHF is little changed, with a safe haven bid (finally) emerging while the NOK (and
the CAD to a lesser extent) is supported by still firm crude oil prices.

USDCAD (1.2716) • The CAD is softer on the day but losses relative to its
commodity peers are somewhat limited and it is still showing a mild advance (at the
moment) against the USD on the week overall. The sharp rise in crude oil prices
following yesterday’s OPEC+ production decision is giving the CAD some protection
against the general squeeze higher in the USD but it should be noted that the Bank
of Canada is also juggling stronger economic growth signals and rising domestic
yields the moment. CAD-supportive spreads and firm crude suggest CAD losses
against the USD should remain contained and drive CAD out-performance on the
crosses in the near term. Canada releases Trade data at 8.30ET and the Ivey PMI
at 10ET.

USDCAD short-term technicals: Bullish—USD gains are putting the 1-year

downtrend in the low 1.27 zone under more obvious pressure into the end of the
week. We spot resistance just above the market at 1.2740/50 ahead of 1.2805/10.
Technically, last week’s snap higher in the USD and a high close on the week this
week would tilt risks towards additional USD gains in the coming near-to-medium
term. Support is 1.2695 and 1.2655.

EURUSD (1.1932) • The EUR reached a new low since late-Nov this morning
alongside the dollar-positive mood dragging the EUR lower by about 0.3% at
writing—a slightly more muted loss than most of its major peers. Widening US yields
over their US counterparts are acting against the EUR, with 10-yr UST yields rising
by 60-65bps in 2021 compared to 27-30bps in France and Germany—which remain
below zero, to boot. All signs point to a continued widening of the US-Europe spread
with the former’s vaccinations drive far outpacing the bloc and laying the groundwork

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 GLOBAL FX STRATEGY | DAILY FX UPDATE
Friday, March 5, 2021

for a widening of the US’s economic might over the Eurozone, with 25 doses per 100 people given in the US compared to 8 in France,
Germany, and Italy (who blocked an AZ vaccine shipment to Australia). EUR price action will likely follow bond markets in the near
term (at least) while vaccine sentiment continues to weigh on the EUR with no clear ramp up in shots yet. Today’s US jobs report will
likely result in choppy EUR price action upon release and may send the currency below the 1.19 level.

EURUSD short-term technicals: Bearish—The EUR’s quick drop below 1.20 during yesterday session has been met with practically
no significant positive price action as it reached its lowest mark since late-Nov. The EUR hesitated to fall below 1.1950 earlier today
but the line also gave in quickly once the move materialised, which leaves the EUR trading clearly out of the sideways band it had
traded it since mid-Jan. The EUR is currently holding around the 23.6% Fib retracement of its Mar-Jan upswing at 1.1945 that may
prevent further losses on a closing basis (alongside the mid-fig area) with psychological support coming in at 1.19 to prevent a
continued drop. Intermediate resistance is 1.1950 followed by the 1.20 mark. The EUR’s losses are flagging oversold on the Bollinger
charts and nearing the mark in the RSI.

GBPUSD (1.3814) • Sterling fell under 1.38 in the market’s broad-based push in favour of the greenback that has hit the GBP
somewhat harder than most majors with a 0.6/7% decline. The pound is still holding a ~1% gain for the year—something that only the
TWD can also claim among the major currencies—with markets cozying up to the GBP as they withdraw BoE cut bets and Britain
leads the vaccination race. While its European counterparts have lost ground against US yields, Gilts yields have matched the increase
in USTs in the 5- and 10-yr space while 2-yr Gilts have gained about 25bps on USTs for the year. The BoE’s Haskel speaks at 9.05ET,
but the market’s focus may still be on the results of the US jobs report and closely watching bond markets. Next week is fairly quiet for
the GBP from a home calendar standpoint after Bailey’s speech on the economic outlook on Monday morning.

GBPUSD short-term technicals: Neutral/bearish—Cable traded briefly below 1.38 earlier today with the figure area likely to stand as
a firm intermediate support that will be followed by the mid 1.37s and the big figure. The 200+ pips drop in the GBP from its brief cross
above 1.40 yesterday mirrors the pound’s price action last Thu/Fri when it dropped by nearly 300pips in the space of 20 hours. On a
closing basis, sterling will seek to hold above its 50-day MA at 1.3754 that counteracted GBP declines in December twice and is
helping guide the GBP’s still strong upward trend—that is placed into doubt upon a drop below the mid 1.37s area which leaves the
GBP liable for a decline to 1.35. Resistance is 1.3850/60 followed by the 1.39 area.

TECHNICALS: BUY/SELL SIGNALS AND PIVOT LEVELS Mar 05, 2021

30 Day 9 & 21- Pivot 1st Pivot 1st
Spot MACD DMI RSI
Hist Vol day MA Support Resist.
USDCAD 7.2 1.2703 buy sell sell 52 1.2611 1.2759
EURUSD 6.1 1.1938 sell sell sell 35 1.1879 1.2032
GBPUSD 6.2 1.3823 sell buy sell 46 1.3736 1.3964
USDCHF 6.9 0.9277 buy buy buy 78 0.9208 0.9329
USDJPY 5.3 108.38 buy buy buy 80 107.38 108.97
AUDUSD 11.6 0.7673 sell buy sell 43 0.7612 0.7774
USDMXN 15.3 21.2133 buy buy buy 68 20.89 21.40
DXY (USD index) 5.7 91.93 buy na buy 67 91.26 92.32
EURCAD 6.1 1.5164 sell sell sell 38 1.5102 1.5249
GBPCAD 5.8 1.7560 sell buy buy 48 1.7504 1.7647
AUDCAD 7.1 0.9747 sell buy sell 40 0.9693 0.9838
CADMXN 13.4 16.70 buy buy buy 70 16.51 16.81
BoC Noon Rate #NAME? Source: Scotiabank & Bloomberg

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 GLOBAL FX STRATEGY | DAILY FX UPDATE
Friday, March 5, 2021

TODAY'S CALENDAR
Time (ET) Country Release Period Consensus Last
08:30 CA Int'l Merchandise Trade Jan -1.40b -1.67b
08:30 US Change in Nonfarm Payrolls Feb 198k 49k
08:30 US Unemployment Rate Feb 6.3% 6.3%
08:30 US Average Hourly Earnings MoM Feb 0.2% 0.2%
08:30 US Trade Balance Jan -$67.5b -$66.6b
09:00 UK BOE's Haskel Speaks on a Panel
10:00 CA Ivey Purchasing Managers Index SA Feb -- 48.4
15:00 US Consumer Credit Jan $12.000b $9.734b
15:00 US Fed’s Bostic Discusses Macroeconomic Policy

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