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By XE Market Analysis January 13, 2021 2:32 pm
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    XE Market Analysis: Asia - Jan 13, 2021

    FX trade was relatively quiet in N.Y. on Wednesday, keeping the DXY inside of a 90.20 to 90.45 trading band. Incoming data saw December CPI on the cooler side of expectations, though there was little market reaction. Wall Street struggled, though into the close, the major indices were all in modestly green territory. Treasury yields came off the boil following a well-received 30-year bond auction. Looking forward, prospects for huge additional fiscal stimulus from the new Congress, along with the rollout of Covid vaccines will likely result in a faster than initially anticipated U.S. economic recovery, and will support the USD going forward. In addition, huge Treasury supply to fund the stimulus will likely keep U.S. yields on a higher path, while the beginnings of inflation concerns will keep yields underpinned as well. As a result, the USD should have legs to run moderately higher in the first half of the year.

    [EUR, USD]
    EUR-USD bottomed at 1.2140 after the London close, just above the lows seen on Monday and Tuesday. The pairing had traded as high at 1.2223 overnight, and printing a 1.2181 top in N.Y. morning dealings. A round of verbal intervention from ECB's Villeroy likely weighed on the Euro to a degree, reminding the forex market that he and his colleagues "are monitoring with particular attention the negative effects of the euro exchange rate." Meanwhile, talk of Fed tapering of late, and pushback ono that from a pair of Fed hawks on Tuesday has likely helped the USD at the margins.

    [USD, JPY]
    USD-JPY rallied from 103.53 overnight lows, ultimately finding buyers into the 20-day moving average at 103.52. The pairing later rallied to 103.97 highs, matching its 50-day moving average, which marked initial resistance, resulting in USD-JPY pulling back to 103.77. Above the high, sellers are reportedly in place from 104.00. The USD firmed up some from earlier lows, though remains off of highs seen earlier in the week. Markets will brace for Thursday's initial jobs claims, where an improvement could aid the USD's fortunes. Meanwhile, in Japan, Covid restrictions have been ramped up further, including the ban of international travel. Cases have continued to climb there, threatening the economy, which will keep pressure on the Yen.

    [GBP, USD]
    Cable fell from 1.3701 highs seen in London to lows under 1.3615 after the London close. The pairing subsequently recovered over the 1.3650 mark. The pound rallied on Tuesday after both the BoE Governor Bailey and Deputy Governor Broadbent sounded cool on negative interest rates. This, along with the rapidly proceeding Covid vaccination program in the UK, which is on track to have nearly 25% of the population vaccinated including nearly all of the at-risk groups by mid February, has been behind the pound's buoyancy over the last day. 0verall, we are taking a neutral view on sterling at this juncture, not seeing either strong downside or upside risks.

    [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 pairing slipped to near one-month lows of 107.84 in N.Y., as EUR-USD remained near recent lows following ECB verbal intervention, which indicated the Bank is not happy with further Euro gains.

    [USD, CAD]
    USD-CAD recovered from two-session lows of 1.2704, seen in Asia, topping at 1.2747 in early North America. The move to the highs came on the back of a $1/bbl slide in WTI crude prices. The front-month contract printed 11-month highs of $53.93 overnight, before falling to $52.59 after the N.Y. open. The USD remains generally firmer, as hopes for stimulus, leading to quicker growth, and higher Treasury yields support. The pairing later faded to 1.2685 lows as the USD broadly turned lower. USD-CAD resistance is at 1.2766, the 20-day moving average, with support seen at 1.2685, Monday's low.

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