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By XE Market Analysis January 11, 2021 2:29 pm
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    XE Market Analysis: Asia - Jan 11, 2021

    The Dollar rallied to three-week highs in early N.Y. trade, taking the DXY to 90.72, up from overnight lows of 90.03. The Greenback later pared gains, as Wall Street posted losses, albeit from record closing highs on Friday. USD price action has shifted since the middle of last week, as higher interest rates, and prospects for more stimulus have raised hopes for a much faster economic recovery, once vaccines become widespread. Previously, the USD's safe-haven status had seen moves negatively correlated to the risk-backdrop. This appears to have shifted for now, with the Dollar coming under pressure on the back of risk-off conditions, and vice-versa. There was no data to move markets on Monday, and Tuesday's docket will be light as well.

    [EUR, USD]
    EUR-USD printed nearly three-week lows of 1.2132 at mid-morning, retreating for the seventh-consecutive session, as the Dollar finds support following the resolution of the U.S. elections, and prospects for further massive stimulus, to quickly ramp up the U.S. economy. Firmer Treasury yields over the past few sessions have provided support as well. The December 21 low of 1.2129 is the next support level, with the 20-day moving average at 1.2221now marking resistance.

    [USD, JPY]
    USD-JPY peaked at one-month highs of 104.40 at mid-morning, up from overnight lows of 104.04, as USD gains continued. The DXY gained four sessions in a row, as Treasury yields rebound, and as hopes for a vaccine driven economic recovery support the Greenback. As the USD came off the boil later, USD-JPY eased back to 104.10 lows. In Japan meanwhile, a Covid state of emergency has been declared for the Tokyo regions, as cases there continue to rise quickly. This has likely been a partial driver of JPY weakness as well. USD-JPY's 50-day moving average at 104.01 is now a support level, with resistance up at 104.58, the December 10 high.

    [GBP, USD]
    Cable touched a near two-week low of 1.3451 in early N.Y. trade, later rallying to 1.3530 highs, as the USD broadly shed some early gains. The Pound has continued to trade with an underperforming bias, continuing last week's theme. UK nations went into a 'tier 5' lockdown last week, the most restrictive level since the full lockdown of spring last year, although there is already talk of a yet more restrictive 'tier 6' being introduced. The UK's terms of trade with the EU has also eroded in the Brexited world, despite the deal, with the key financial services sector left in a strategically more precarious position than before, with participation in EU markets dependent on the latter's equivalency rules. As a result, upside potential for Cable will remain limited.

    [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. To start the year, EUR-CHF pulled back under the 1.0800 level, which had provided good support for much of December. The cross remained over the 1.0800 mark in N.Y. on Monday, though a bout of risk-off put some pressure on the pairing.

    [USD, CAD]
    USD-CAD rallied to a near two-week high of 1.2835 early in the session, coming from overnight lows of 1.2688. General USD strength, which has prevailed since the outcome of the U.S. runoff Senate elections kept the pairing supported, as the likelihood of further massive fiscal spending, higher U.S. Treasury yields, and prospects for a faster economic recovery, especially when Covid vaccines are factored in. The pairing later dipped under its 20-day moving average, which sits at 1.2772.The next USD-CAD resistance level comes at 1.2855, which was the December 29 peak, with support at Friday's 1.2659 low.

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