Friday December 4th, 2020

The US$ index remains under pressure, down 1.4% in December and down 7% YoY, with analysis predicting further US$ weakness into 2021. Risk on sentiment remains as US stimulus optimism grows as GOP support builds for the proposed US$ 908bln in relief. Ahead of a vaccine approval in the US the California Governor issues regional lockdown plans as ICU’s near capacity. Sino/US tensions continue as China’s CNOOC & SMIC are added to the defense blacklist, Chinese officials describe the US targeting of Chinese firms as discriminatory. On a currency front, Chinese policy makers remain comfortable with a stronger Yuan as their domestic economy recovers. CNY continues stronger up 0.16%, while TWN rallies 0.8% & KRW strengthens 0.5%, other Asian currencies are up 0.15% on average vs US$. Trading Currencies are mixed with ZAR, JPY & NOK are down 0.15%, AUD down 0.3%, NZD is down 0.3%, while the MXN strengthens 0.3% vs US$. Intraday US jobs report is expected to show job growth to be the smallest since May. 

Oil prices are up 1% towards $50/bbl after OPEC+ reaches a supply output compromise. Output will increase to 0.5mln BPD from January and OPEC+ will then meet decide potential adjustments monthly. C$ holds close to its 2-year highs supported by OPEC+ agreement and Monday’s announcement of domestic economic stimulus. Longer-term our bias is for a stronger C$, but US$ yearend demand is likely to see a pullback towards 1.30 presenting a selling opportunity. Intraday Canadian Unemployment data will be watched closely for direction. Support lowers 1.2778 (Oct 1st,18) while resistance lowers to 1.3010. 

Euro holds above 1.2150, its strength fueled by a weak US$ driven by vaccine rollout optimism and US$ stimulus hopes. Euro is trading near 3-year highs vs US$ despite EZ covid lockdowns and weak productivity in Germany. ECB Officials said to be open to a 12-month bond buying extension ahead of its Dec10th meeting. Intraday focus will be on US Nonfarm payrolls and US jobless claims which will likely provide intraday direction to the markets. Support rises to 1.2050 with resistance holding at 1.2209 (Apr 2018)

GBP holds near recent highs amid conflicting Brexit reports of a last minute bumps in negotiations . Sky news suggest Brexit is going backwards while the UK Telegraph indicate a weekend meeting between the UK & French leaders. Focus shifts from Friday to Monday for a possible Brexit announcement. Domestically the Vaccine role out is expected as soon as next week and today UK construction PMI beat expectations. Brexit updates and US Jobs data will be watched closely for intraday direction. Support holds at 1.3280, with resistance holding at 1.3500.