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By XE Market Analysis December 7, 2020 2:49 pm
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    XE Market Analysis: Asia - Dec 07, 2020

    The Dollar showed signs of a rally in overnight trade, though USD sellers quickly emerged at the N.Y. open, taking the DXY from 91.24 highs to 90.71 lows. Brexit uncertainty saw risk-taking levels sink, leaving Wall Street mostly lower, and Treasury yields under pressure. In addition, Covid worries remained, as cases and deaths in the U.S. continue to rise sharply. There was no data to move markets on Monday, and indeed this week is quite quiet on the economic front, with CPI and PPI highlighting. EUR-USD headed from 1.2108 lows at the open to 1.2166, while USD-JPY dipped from early highs over 104.30 to 103. 92. USD-CAD was choppy, rallying to 1.2815 from 1.2792, later falling under 1.2790 before touching 1.2810. Cable recovered its overnight losses, opening under 1.3255, later hitting a 1.3400 high.

    [EUR, USD]
    EUR-USD traded to four-session lows of 1.2079 in London morning trade, though an early round of USD selling after the N.Y. open took the pairing to highs of 1.2166, since easing to 1.2130 lows before again heading to 1.2166 in N.Y. morning dealings. Markets will look ahead to the ECB on Thursday, which will announce its latest "policy recalibration". That Lagarde will deliver a strengthening of PEPP and TLTRO programs is almost certain, and a move to a more symmetric inflation target also wouldn't surprise anyone, but those hoping for another easing bonanza are likely to be disappointed. As a result, given the USD's already shaky footing, EUR-USD downside potential will likely remain limited until then.

    [USD, JPY]
    USD-JPY was contained through the session, remaining inside of recent trading bands. The pairing eased from overnight highs of 104.31, bottoming at 103.92 at late-morning in N.Y. Moderate risk-off conditions and lower Treasury yields have supported the Yen. With both the USD and JPY considered safe-haven currencies, scope for major USD-JPY directional move should remain limited, as both tend to move in the same direction, depending on the risk backdrop. USD-JPY resistance is at the 20-day moving average at 104.38, with support seen at Friday's 103.74 low.

    [GBP, USD]
    Sterling pared losses against the dollar, thanks to a phase of weakening in the latter, but remained heavy. The pairing had fallen from over 1.3420 to 1.3224 on fears of a no-deal Brexit outcome. After the London close, GBP-USD headed to N.Y. session highs of 1.3400, on reports that U.K. PM Johnson will meet EU chief von der Leyen in Brussels face to face this week, following a phone call which ended with reportedly significant differences. No deal yet, but the Sterling market appeared to be on board for a last minutes effort.

    [USD, CHF]
    EUR-CHF traded to four-week lows of 107.81 in N.Y. on Monday, as moderately risk-off conditions prevailed. Positive Covid vaccine news, along with the formal start of the transition to a Biden presidency, turned sentiment higher last week, largely keeping the cross over the 1.08 level. EUR-CHF had struggled to hold the level since the summer, and will likely remain altitude limited going forward unless the risk-backdrop holds up. In addition, the cross will remain under pressure should the ECB embark on further easing in December.

    [USD, CAD]
    USD-CAD recovered from near 31-month lows of 1.2773 lows seen on Friday, bouncing to 1.2833 highs as oil prices were pushed lower by a Brexit related wave of risk-off. Crude prices later recovered, allowing USD-CAD to dip back below to 1.2785. The Greenback revealed a slightly higher bias overall overnight, though again came under some pressure in early N.Y. trade. Oil prices and overall USD direction will continue to drive USD-CAD.

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