Monday December 14th, 2020

The US$ drops as risk-on mood returns on US vaccine rollouts and US stimulus optimism. The US launches its first shipments of vaccines for distribution this week, as US virus cases surpass 16.25mio and NY announces new virus restrictions. US stimulus hopes continue as lawmakers are expected to unveil a COVID-relief plan. Over the weekend Pelosi & Mnuchin and other lawmakers gave press conferences suggesting a stimulus deal could be split in to two parts and pass as early as Monday. Adding to market confidence is the expectation that the electoral college will ratify the US election results for Biden. Currency markets rebound towards multi-year highs, while China attempts to stem the rise of CNY by reducing capital inflows. CNY strengthens just 0.05% while Asian currencies rally 0.25% on average vs US$. Trading currencies rally vs US$ with JPY & MXN up 0.3%, AUD up 0.4%, NZD up 0.55%, ZAR up 0.8% while NOK leaps 1.2%. No key data releases today, so markets will continue to focus on US Vaccine and Stimulus updates.

Oil prices strengthen 1% with Brent Crude rebounding above US$50pb boosted by vaccine rollouts and US stimulus hopes. Oil prices are entering its 7th-week of gains, which is it’s best performance since June. C$ strengthens, but lags behind its peers as risk-on mood returns. Stronger oil prices and a weakening US$ is helping support C$ remain near its multi-year highs. Yearend US$ demand and pessimistic 2nd-wave forecasts for Canada are stalling C$’s ability to advance. No Canadian data out today, so focus will remain on the US Stimulus updates. Support 1.2710 if breached look for a potential move to 1.2522 (Apr 2018) while resistance holds 1.2875. 

Euro holds steady above 1.21 amid growing risk-on sentiment from US vaccine rollout and US stimulus hopes. Capping Euro’s strength are the lingering ECB comments on the strength of the Euro in the current EU economic/pandemic environment. Brexit discussions continue helping boost GBP and adding support to the Euro, but the clock is ticking. Covid virus cases across the EU continue hit record high cases, Germany and other EU countries extend lockdown measures. Analysts are forecasting Euro to 1.2025 into January despite the current risk-on sentiment. Support holds at 1.2050 as resistance holds 1.2180 with key resistance holding at 1.2209 (Apr 2018).

GBP rallies +200 basis points on fresh Brexit hopes. Yet another Brexit deadline passes, and a new deadline is set as the EU and the UK extend Brexit talks with reports of progress on key issues. Adding to GBP strength is the weaker US$ as risk on sentiment returns with markets looking for a stimulus announcement as soon as today. Just 17-days left until the Brexit transition expires markets remain optimistic, but a no-deal could see growth forecasts cut in half. The BoE will give its final rate decision this week, but no rate changes are expected. Brexit news will continue to drive markets/volatility. Support at 1.3104 (Nov12th) with resistance at 1.3539 (Dec4th).