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By XE Market Analysis December 9, 2020 2:22 pm
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    XE Market Analysis: Asia - Dec 09, 2020

    The Dollar found some traction in N.Y. on Wednesday, seeing the DXY peak at 91.20, up from 90.77 early in the session. A soggy risk backdrop provided some support to the USD, following more than a month of surging global equity markets, which weighed heavily on the Greenback during that time. The Dollar may continue to gain some ground into year-end, as stocks are likely to consolidate the massive gains seen this year. Profit taking and rebalancing of portfolios should keep pressure on equities, which in turn, should support the USD. Incoming data was light, with markets overlooking the better October wholesale report, which is generally the case. Wall Street remained pressured by new uncertainty over the likelihood of a fiscal stimulus package. Senate Leader McConnell said the Democrats "brushed off" his proposal for a relief bill that would leave out liability protection and state aid, throwing cold water on his plan. Talk of possible vaccine shortages in the U.S. early next year didn't help sentiment either.

    [EUR, USD]
    EUR-USD printed one-week lows of 1.2063 into the London close, on it way from early highs of 1.2124. Dollar losses have taken a breather this week, following the sharp declines seen through November and early December. The one-way higher stock trade seen since last month has turned more two-way recently, giving the safe-haven USD some support. Positive Covid vaccine news has 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 was again stuck in the mud, opening the N.Y. session at 104.08, later printing 104.41 highs after the London close, a one-week high. A relatively benign risk backdrop continued to hem the pairing in, which has seen USD-JPY range between 103.92 and 104.41 all week. 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 opened the N.Y. session at four-day highs of 1.3478, then spent the morning session retreating to 1.3356 after the London close. Overall, the Sterling market is lacking follow-through commitment, wanting concrete developments on trade talks. The UK became the first side to blink, on Tuesday removing the offending parts of its controversial internal markets bill. UK Prime Minister Johnson travelled to Brussels for a dinner meeting with European Commission President von der Leyen. This comes ahead of tomorrow's EU leaders' summit. Political pundits are, quite rightly, touting the coming days as the make or break moment in the Brexit endgame. The negotiating teams have evidently gone as far as they can, and it's now, finally, the heads of state will bring matters to a close.

    [USD, CHF]
    EUR-CHF faded further in N.Y. on Wednesday, touching fresh one-month lows of 107.47, as moderately risk-off conditions prevailed. Today marked the fourth-straight session of lower daily lows. 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 headed lower following the BoC announcement, where policy was left unchanged, as widely expected. The pairing dipped from just over 1.2790 to 1.2770. The Bank's statement reiterated the labor market continues to recover, though at a slower pace, and economic recovery will remain choppy until a rollout of Covid vaccine. The Bank said it will maintain rates at the lower bound until inflation at 2% is sustainable, estimating this will not happen until 2023. The pairing later headed to 1.2820 as WTI crude prices dropped $1/bbl following the huge crude inventory build reported by the EIA. Risk taking levels subsided from earlier levels as well, with the combination weighing on the CAD. USD-CAD resistance is at Tuesday's 1.2826 high.

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