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By XE Market Analysis December 8, 2020 2:50 pm
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    XE Market Analysis: Asia - Dec 08, 2020

    Overall, the Dollar was slightly firmer in N.Y. on Tuesday, though traded ranges were narrow, and activity muted. The DXY headed from early lows of 90.79 to a high of 91.01 at mid-morning. Aside from revised Q3 productivity and unit labor cost revisions, which were largely ignored, there was no market moving data released. Wall Street started out underwater, though eventually climbed into shallow positive territory, following reports the FDA said Pfizer's Covid vaccine meets success requirements. Treasury yields faded some. EUR-USD topped at 1.2134, later touching a low of 1.2100, while USD-JPY bottomed at 104.03 before rallying modestly to 104. 21. USD-CAD perked up from 1.2780 lows to 1.2826 highs, as GBP-USD chopped around between 1.3290 and 1.3394 on Brexit uncertainty.

    [EUR, USD]
    EUR-USD topped at 1.2134 in N.Y. morning trade, later dipping to 1.2100 lows, before steadying near 1.2120. The risk-cautious backdrop seen in global markets so far this week has seen the dollar's downtrend lose some urgency, which might continue through the remainder of December. Positive Covid vaccine news ha likely been fully priced in, while talk of rebalancing of portfolios (selling equities) into year-end could well keep a cap on stock markets. We remain bullish on EUR-USD into 2021, given global economic recovery is expected as vaccines are widely rolled out.

    [USD, JPY]
    USD-JPY traded inside of Monday's ranges on Tuesday, bottoming at 104.03 early in N.Y., later making its way to 104.21 in very light trade. The risk backdrop was relatively benign through the morning session, which likely kept USD-JPY trading ranges so narrow. Japan PM PM Suga unveiled a $708 bln fiscal package overnight, aimed a boosting the economy, though there was little impact on the Yen. We look for USD-JPY to continue to ply well worn ranges, as activity slows, and volatility is expected to decline into year-end.

    [GBP, USD]
    Cable popped higher in early N.Y. trade, rallying from 1.3290 to 1.3393 highs, as reports circulated there was a Brexit trade deal done. This turned out to be premature, however, and the pairing later fell back under the 1.3300 mark. The U.K. confirmed that the controversial passage of the U.K.'s Internal Market Bill, which violated the Withdrawal Agreement, would be removed, which only means that any deal now has a chance to get through the European Parliament. So far there is no agreement on the modalities of a post-Brexit trade deal yet. U.K. PM Johnson is set to travel to Brussels for in-person crisis talks with EU Commission President von der Leyen ahead of the EU Council meeting that starts on Thursday. In the meantime, Sterling direction will remain headline driven.

    [USD, CHF]
    EUR-CHF traded to four-week lows of 107.60 in N.Y. on Tuesday, as moderately risk-off conditions prevailed, heading under its 50-day moving average in the process. 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 hit fresh 32-month lows of 1.2768 in London morning trade, down from the early Asian peak of 1.2809. The move to the lows coincided with WTI crude's rally from near $45 to just under $46. Crude prices subsequently retreated some again, allowing USD-CAD to rally back over 1.2825. Modest risk-off conditions should keep USD-CAD downside contained, though oil prices action will be a bigger driver of the pairing's direction for now. The next downside target is the 1.2729 low seen the first week of May 2018.

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