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By XE Market Analysis January 20, 2021 2:40 pm
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    XE Market Analysis: Asia - Jan 20, 2021

    The Dollar started Wednesday's session on a slightly firmer footing, though later faded to near unchanged levels on the session. Some consolidation has been noted this week, following better than a week of gains seen once it became apparent the Democrats would control Washington, and likely push for huge fiscal stimulus, aimed at getting the economy back in recovery mode. Joe Biden was inaugurated as the 46th President of the United States, at a ceremony which saw no violent protests, or disruptions of any kind. Wall Street rallied, with prospects for additional stimulus keeping a bid in stocks. Intra day, the three major indices printed all time highs. Treasury yields were narrowly mixed. Thursday's U.S. calendar features weekly jobless claims, with initial claims seen falling to 800k from the previous 965k. Continuing claims should decrease to 5.100 mln from 5.271 mln. December housing starts are forecast at a 1.560 mln pace, from 1.547 mln, while the January Philly Fed index is seen improving to 13.0 from 9.1.

    [EUR, USD]
    EUR-USD fell from 1.2158 highs seen in London morning trade, later basing at 1.2077 in early N.Y. dealings. The pairing later bounced over 1.2115, after seeing buyers step in under the 50-day moving average, which currently sits at 1.2084. After finding some support overnight, the Dollar generally pulled back later in the session. The euro wasn't impacted much by a Bloomberg story, citing sources, confirming that the ECB is actively targeting spreads and thus borrowing costs for governments across the Eurozone. The dollar, meanwhile, has come off the boil amid a backdrop of buoyant global stock markets. The 'looking-past-Covid' reflation trade seems to have returned to a degree, following recent dormancy, aided by the anticipation of a big spending Biden era in the U.S.

    [USD, JPY]
    USD-JPY printed a two-week low of 103. 45 at mid-morning, down from post-closing highs of 103.94 on Tuesday. The pairing has for the most part remained inside of its 20- and 50-day moving averages (currently 103.61 and 103.92, respectively) for a week now. Firmer Treasury yields, which have ramped up since the confirmation of an all-Democrat controlled U.S. government will likely continue to provide some support, while the Yen may remain under pressure as Covid cases grow quickly in Japan, leaving many hospitals at or near capacity. About half of Japan's population is under some sort of lockdown order, and there have been reports that Japanese officials are pushing for the entire country to go on lockdown for at least a month. This would weigh heavily on any prospects for economic recovery anytime soon.

    [GBP, USD]
    The Pound broke higher, which was partly a function of EUR-GBP trading through recent lows, on route to printing an eight-month low at 0.8837. Cable headed above last week's trend highs to a fresh 32-month peak at 1.3718. Market narratives are talking about the breach of key downside technical levels in EUR-GBP, along with the warmer than anticipated December inflation data out of the UK, which came with last week's downplaying of the negative interest rate option by BoE Governor Bailey and Deputy Governor Broadbent. UK December inflation figures, releases earlier, saw headline CPI come in slightly higher than expected.

    [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 remained under the 1.0800 mark through Wednesday's session.

    [USD, CAD]
    USD-CAD ticked briefly higher following the cooler Canada CPI outcome, though reaction was minimal. The pairing remains at four-session lows, basing at 1.2690 as oil prices test 11-month highs. WTI crude has topped at $53.80, just shy of the January 13 trend peak of $53.93. Risk-on conditions have helped the CAD again on Wednesday. Later, USD-CAD tumbled to fresh 33-month lows of 1.2606, down from 1.2717 highs into the North American open. The move lower came following the BoC announcement, where rates were left unchanged as expected, though the Bank's fairly aggressive forward looking GDP forecasts, helped the CAD. The BoC statement said the economy will "continue to require extraordinary monetary policy support." As before, they will hold the policy rate at the effective lower bound until slack is absorbed and the 2% inflation target is sustainably achieved -- which is still seen happening in 2023. As for the growth outlook, Q1 GDP is expected to be negative due to the resurgence of cases and return of lockdown measures, but a strong rebound in projected in Q2. GDP is seen rebounding 4% in 2021 after the -5.5% drop in 2020.

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