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By XE Market Analysis January 12, 2021 3:00 pm
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    XE Market Analysis: Asia - Jan 12, 2021

    The Dollar was range bound in N.Y. on Tuesday, though ultimately ended modestly lower overall. The DXY touched 90.54 highs early in the session, later easing under 90.30 in relatively quiet trade, after being unable to breach Monday's three-week high of 90.72. There were no major data releases to move markets. Risk-taking levels were narrowly mixed, seeing Wall Street trade either side of flat through the session. Treasury yields maintained altitude however, as this week's supply, both Treasury and corporate, rising inflation expectations and now some Fed talk about QE tapering sooner than expected continue to weigh on Treasury prices. For now, given prospects for further stimulus, and firmer yields, we look for the USD to hold its own for the time being. Wednesday's U.S. economic calendar is light, though December CPI will be of interest.

    [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 found support above the 104.00 level overnight, basing at 104.10 after Monday's close. The pairing has since made its way to 104.33 highs in N.Y. morning trade, though overall remains within a relatively narrow trading range. Firmer U.S. yields have supported the Dollar of late, while rising Covid cases in Japan will likely result in slowing economic recovery there, which will continue to weigh on the JPY. Monday's one-month high of 104.40 is the next upside target, with support now at the 50-day moving average, which currently stands at 104.00.

    [GBP, USD]
    Cable topped at 1.3637 into the London close, after opening near 1.3595, and up from overnight lows of 1.3504 seen in Asia. The pair is still showing a modest decline on the year so far. The gains were driven by BoE Governor Bailey, who displayed his concerns with the negative interest rate option, remarking that there are a "lot of issues" with going this route, given the impact on the business model of commercial banks. This, and the background fact that the UK government is aiming to, and is indeed so far on track to, have nearly 25% of the UK population vaccinated against Covid by mid February, including all of the most at-risk groups, has been the justification to buy pounds.

    [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 Tuesday, in light trade.

    [USD, CAD]
    USD-CAD moved off its overnight low of 1.2733, which coincided with WTI crude's rise to 11-month highs, since climbing to 1.2778 in early North American trade, as oil prices fade some, and as the risk backdrop remains a little shaky for now. USD-CAD later eased back to 1.2728 lows in light afternoon trade. Overall, a relatively quiet session in FX Land, with the DXY staying well inside of Monday's trading range. Monday's high of 1.2835, and low of 1.2688 now mark resistance and support, respectively.

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