XE Market Analysis: Asia - Jan 05, 2021

The Dollar came under modest pressure in N.Y. on Tuesday, with the safe-haven currency weighed down by a moderate risk-on backdrop. Wall Street headed higher, despite the uncertainty of Tuesday's Georgia Senate runoff elections. A better than expected December manufacturing ISM helped the USD briefly, and aided stocks as well, though the sharply higher ISM prices paid component weighed on Treasuries, resulting in a bump up in yields as inflation concerns begin to take shape. Should risk taking levels continue to hold up, as Covid vaccines are rolled out, we expect further USD losses in the coming weeks.

[EUR, USD]
EUR-USD was relatively steady since the N.Y. open, ranging between 1.2254 lows, seen after the better manufacturing ISM, and 1.2305 highs after the London close. Looking ahead, highly valued U.S. equity markets, along with negative real U.S. interest rates, and the Fed's uber-easy policy stance should keep EUR-USD supported for the foreseeable future. Lat week's trend high at 1.2310 is the next upside target, with a break there likely to see buy-stops come into focus.

[USD, JPY]
USD-JPY printed intra day lows of 102.60, down from overnight highs of 103.19. Range bound trade largely prevailed in N.Y., though the pairing did print a new trend low, under Monday's 11-month base of 102.72. The relatively neutral risk backdrop kept price action contained, though we continue to expect the USD to remain under pressure, should risk-on conditions generally prevail. Near term, risk events will be the results of today's U.S. Senate runoff elections, and looking ahead, how smoothly the rollout of Covid vaccines will likely impact equity markets and the economic outlook overall.

[GBP, USD]
Cable rallied from early lows of 1.3559, later peaking over 1.3640. The moderate risk-on conditions saw the haven USD come under modest pressure through the session. We anticipate that the pair will remain underpinned on the back of a soft dollar, though the pound may concurrently maintain a flat-to-weakening bias against the euro. The UK's terms of trade with the EU have eroded in the post-Brexit world, despite the deal, and the key financial services sector is in a strategically more precarious position than before, with participation in EU markets dependant on the latter's equivalency rules, although London's marked natural advantage in this area should protect the sector over the near- to-medium term.

[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. A relatively neutral risk backdrop saw the cross trade either side of 1.0800 through the Tuesday session.

[USD, CAD]
USD-CAD recovered from the 33-month lows of 1.2666 seen on Monday, topping at 1.2785 later in the session, and holding the 1.2730 level overnight. The fairly sharp drop in oil prices from yesterday drove USD-CAD higher, as WTI crude slid from over $49.80 to under $47.20. From there however, reports that OPEC+ had agreed to output cap through February saw WTI crude trade to 10-month highs just over $50. That resulted in USD-CAD falling back to 1.2670 in afternoon trade.