Monday December 11th, 2021

Risk-off sentiment returns as US Treasury yields rise, the US$ strengthens and Dems threaten impeachment. The US$ extends its gains on rising US Treasury yields as the bond sell off extends and the Federal Reserve appears to be tolerating the increase in long-term rates. US politics’ remains centre stage with Dems looking at kicking off efforts to drive the US President out of office after last week’s attack on Capitol Hill. If the VP doesn’t invoke the 25th amendment, Dems warns of a possible impeachment vote. Sino/US tensions continue to grow as the US Administration scraps decades-old restrictions on interactions with Taiwan officials. Also, in an attempt to comply with US sanction on Chinese military-linked companies a number US financial institutions look to delist 500 structured products from Hong Kong Exchanges. In other news, Global coronavirus cases surpass 90 mio, with China’s Hebei sees most COVID-19 cases since July, Japan discovers new variant, the US records its highest death toll on Wednesday and European countries extend lockdown measures. CNY holds flat, JPY down 0.15%, while Asian currencies weaken down 0.4% on average vs US$. Trading currencies tumble with AUD down 0.6%, NZD down 0.75%, MXN down 0.9%, while ZAR and NOK both drop 1.05% on average vs US$. With no key economic data releases today, markets will follow US Treasury yields and US political updates.

Oil prices slip over 1% on increased global lockdown measures, a stronger US$ and falling demand fears. C$ rebounded easily in early trading towards 1.28 on weaker oil prices and a strengthening US$. Canada’s 7-month streak of gains in the labour market came to an end in December as the 2nd-wave restrictions took its toll on employers. BoC Business Outlook Survey will be watched closely alongside US Treasury yields and US political development to provide intraday direction. Support rises to 1.2735 with resistance at 1.2798, if breached look for an extension towards 1.2860.

Euro came under renewed selling pressure, dropping below 1.22 as risk-off mood returns. The combination of rising US yields, US political uncertainty, surging coronavirus cases and increased lockdown measures saw a reversal in the markets risk-on appetite. Europe remains locked down as the coronavirus continues to surge and the pace of vaccination remains sluggish. Euro falls below 1.2205, the 2020 closing level and bias remains for further weakness. Support drops to 1.2125, with resistance lowering to 1.2240.

GBP drops over 150 basis points from Friday’s highs as the UK considers further lockdown measures alongside a rallying US$. The UK is considering even tighter restrictions as hospitals are under immense pressure from surging coronavirus patients. The UK economy remains under significant pressure and expectations is that the Government may offer further support during the Chancellor of the Exchequer speech today. Intraday markets will remain focused on US treasury yields and BoE’s Tenreyro Speech today for direction. Support lowers to 1.3425, with resistance dropping to 1.3520.