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By XE Market Analysis January 21, 2021 2:11 pm
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    XE Market Analysis: Asia - Jan 21, 2021

    The Dollar lost modest ground in N.Y. on Thursday, though major USD pairing trading ranges remained relatively narrow. The DXY put in its third-consecutive lower daily low, bottoming at a seven-session base of 90.05. Incoming U.S. data was mostly positive, though initial jobless claims remained elevated. Continuing claims fell sharply, while housing starts hit a 14-month high, and the Philly Fed index printed an 11-month top. None of the reports had much market influence. Wall Street was mixed, while Treasury yields rose modestly. The jury largely remains out on the USD's direction going forward, with uncertainty remaining high over U.S. stimulus, new tax policy, and the speed at which the U.S. population can be vaccinated. For now, we look for further USD consolidation.

    [EUR, USD]
    EUR-USD headed back near N.Y. session lows of 1.2136 into the London close, after trading to 1.2173 during the ECB press conference. The modest early Euro gains came as Lagarde made specific reference to PEPP purchase volumes that fall short of the envelope which was interpreted as a somewhat more hawkish twist. The ECB said it continues to monitor EUR exchange rates with regard to the implications for the inflation outlook, not a new development, though it did appear to take some wind out of EUR-USD's sails. A note from TD bank today, indicated that the U.S., despite its awkward initial vaccine rollout, is expected to vaccinate a higher percentage of the population at a quicker pace, as compared to the Eurozone. The implication being U.S. that the economy recovers faster than Europe, which in turn would put downward pressure on the Euro versus the USD.

    [USD, JPY]
    USD-JPY recovered some from two-week low of 103.33 seen into the open, since peaking at 103.66. The BoJ left main policy unchanged following its policy review overnight, as had been widely expected. The deadlines for some funding programs were extended, with the central bank taking a grimmer view on the current state of the economy, although it also upped its growth forecast for the expected recovery in the next fiscal year. There were few surprises from the Bank, and as a result the JPY showed little reaction, with USD-JPY continuing inside its roughly 103.00 to 104.00 trading band for over a week. The DXY has traded on a softer footing for the third day, which has stymied USD-JPY upside ability.

    [GBP, USD]
    Cable printed a new 32-month peak at 1.3745 in London morning trade, before settling in to a 1.3740 to 1.3706 range in N.Y. Market narratives over the last day have been talking about the breach of key downside technical levels in EUR-GBP, along with warmer than anticipated December inflation data out of the UK (yesterday), which came hot on the heels of BoE Governor Bailey and Deputy Governor Broadbent downplaying the negative interest rate option. The preliminary UK PMI surveys for January are due Friday, though aren't likely to have much impact, as they will reflect the grim realities of present conditions as opposed to the post-Covid world that many investors are betting on.

    [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 Thursday's session.

    [USD, CAD]
    USD-CAD slipped to 33-month lows of 1.2589 in early North American trade, down from opening highs of 1.2632. The pairing had been under some pressure since the BoC announcement on Wednesday, where the Bank's fairly aggressive forward looking GDP forecasts, helped the CAD. Oil prices have provided support to the CAD since Wednesday as well, with WTI sticking to near trend highs. Mid-April, 2018 lows of 1.2544 is USD-CAD's next downside target. USD-CAD later headed to highs near 1.2650 on intra day short covering.

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