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By XE Market Analysis December 31, 2020 12:17 pm
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    XE Market Analysis: Asia - Dec 31, 2020

    N.Y. FX trade was very quiet on the last day of the year, though the Dollar managed modest gains through the morning session. The DXY has made new trend lows of 89.52 in overnight Asian trade, though managed to rebound to 89.94 highs into the London close. The weekly jobless claims data likely helped USD sentiment to a degree, with both initial and continuing claims printing lower than expected outcomes. Wall Street traded either side of flat, while Treasury yields were little changed.

    [EUR, USD]
    EUR-USD failed to take out Wednesday's 33-month high of 1.2310, topping at 1.2309 during Asian hours, before steadying above 1.2370 through the London morning session. Ultra-then year-end markets have since seen the pairing fall to 1.2225 lows into the London close, as last minute position squaring set in. We expect further USD declines in the coming weeks, as U.S. fiscal stimulus hits the economy, as the Fed remains in uber-easing mode, and as investors rotate into less prices asset abroad.

    [USD, JPY]
    USD-JPY continued to find support into the 103.00 level, holding above the figure on several occasions since the London morning session. The latest mid-morning attempt to break lower was met with buying interest, taking the pairing to intra day highs of 103.32. Still, into year-end, trading ranges remain very narrow, and activity now is set to grind to a halt after the London close.

    [GBP, USD]
    The Pound posted a fresh 31-month high versus the dollar at 1.3676, though part of the move came on the back of USD weakness, GBP posted a six-day high against the euro. We are moderately bullish on the pound from here. While the UK terms of trade with the EU will erode from midnight today, when the Trade and Cooperation Agreement comes into effect, replacing the Common Markets and Customs Union, Brexit uncertainty has finally come to an end, which will unleash a process of business adaptation and pent-up investment.

    [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 hit a two-week low of 1.2714, down from post-close highs of 1.2762. Trade has been very light as the year comes to an end, with most books closed for the year. Price action has been driven by one-off orders and position adjustments, though from here, activity can be expected to move closer to zero following the London close. Looking ahead, USD weakness is expected to persist into 2021, as additional U.S. fiscal stimulus kicks in, and the Fed remains in lower for longer mode for the foreseeable future.

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