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By XE Market Analysis December 28, 2020 1:44 pm
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    XE Market Analysis: Asia - Dec 28, 2020

    FX trade was thin in N.Y. on Monday, as London and parts of the continent remained on Christmas break. Price action was choppy, though the USD overall ended mostly higher. The only data release was the December Dallas Fed index, which was lower than expected, but ultimately had little market impact. The last week of the year will likely see choppy and thin trade prevail, as books are closed into year-end. Looking ahead, the Dollar is widely expected to remain under pressure, as Covid vaccines are rolled out, allowing global economies to reopen. Given the high valuations of U.S. equities, investors may well rotate into less pricey assets, which will likely weigh on the USD.

    [EUR, USD]
    EUR-USD rallied from 1.2181 to 1.2250 overnight, later selling off to 1.2195 into the N.Y. open. The pairing has since headed back to 1.2240. Ultra-thin holiday trade resulted in choppy price action. London was closed for Boxing Day, while desks will remain thinly staffed into the New Year holiday on Friday. Looking ahead, the Brexit agreement will continue to support the Euro at the margins, while the USD is set to remain under pressure in 2021, as investors are expected to rotate out of U.S. assets, into less expensive alternatives elsewhere in the world.

    [USD, JPY]
    USD-JPY remained inside a tight trading band, managing just a 103.56 to 103.89 range since the N.Y. open. Indeed, since last Monday, the pairing has been stuck between 103.25 and 103.90. More of the same can be expected into year end, as the two safe-haven currencies continue to move in the same direction based on the risk backdrop. Overnight lows of 103.40 mark support, with resistance at 103.90.

    [GBP, USD]
    GBP-USD faded considerably from last Thursday's 1.3620 high, dropping to 1.3430 in very thin N.Y. trade. Despite the Brexit trade agreement, the Pound is lower, as the deal was for the most part fully priced in. A "sell the news" outcome appears to be behind Cable's fall, though the lack of London liquidity has likely exacerbated the pairing's slide. The U.K. economy is likely to underperform, at least through the first half of 2021, as trade kinks are worked out, and as new agreements come together. As a result, sustained GBP gains don't appear to be in the cards for now.

    [USD, CHF]
    The SNB maintained policy settings in December and reaffirmed once again that it will use direct intervention on currency markets to keep a lid on the "highly valued" currency, despite the fact that the U.S. now official labels Switzerland as currency manipulator. There was no real surprise in the statement, with the central bank highlighting that Covid-19 is "continuing to have a strong adverse effect on the economy". The bank expects consumer prices to fall sharply this year and to stay around zero over the next two years, also thanks to a strong CHF. EUR-CHF traded to two-week highs of 1.0850 following the SNB announcement, and has remained above 1.0800 since.

    [USD, CAD]
    USD-CAD found support at Thursday's 1.2813 low, since rallying to 1.2851 into the North American open. Buyers emerged under the 20-day moving average, which currently sits at 1.2824. The pairing later back under 1.2835, taking its cue from WTI crude, which rallied toward the $49 mark, up from overnight lows of $47.51. Oil prices later faded, allowing USD-CAD to rally over 1.2875 in thin late morning trade.

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