Monday January 18th, 2021

The US$ holds steady as risk-off sentiment continues as tensions remain high ahead of the US President-elect Bidens inauguration on Wednesday. The US markets are closed today for Martin Luther King day. Goldman boosts US economic outlook projections from 6.4% to 6.6% and expect the unemployment rate to improve to 4.5% after the proposed US$1.9T stimulus plan was announced. Sino/US relations remain tense as the current US administration notified several of Huawei Technology suppliers that it is revoking their licenses to work with the technology company, and halted supplies to Huawei. Meanwhile China exceeded pre-pandemic growth as data released today showed GDP up 6.5% (YoY Q4) and Industrial Production increased to 7.3%, exceeding expectations. Despite its strong economic data CNY fell 0.2% vs US$, while Asian currencies weakened 0.15% on average vs US$. Trading currencies were mixed, safe haven JPY strengthened 0.15%, while AUD & NZD fell 0.35%, MXN & NOK dropped 0.5% and ZAR fell 0.7% vs US$. Expect markets to be somewhat quiet with the US holiday and no US data releases.

Oil prices are down slightly as strong Chinese GDP results offset pandemic related demand concerns. President Elect Biden reportedly will block the Keystone XL pipeline after he takes office on Wednesday. C$ weakened on lower oil prices and the longer-term implications for Canadian oil prices if the Keystone XL pipeline is cancelled. Couche-tard & Carrefour end takeover talks and have shifted to exploring alliance opportunities. Wednesday will see Canadian CPI and BoC rate announcement and Monetary Policy Report. Expect potential further short-term C$ weakness if the Keystone XL pipeline is cancelled. Support rises to 1.2735 with resistance expected at 1.2835 (Jan11th).

Eur edges weaker, trading below 1.21 vs US$ amid mixed market sentiment. Strong Chinese GDP data and anticipation of US$ 1.9T stimulus is being offset by the EU coronavirus lockdowns and Italian political crisis. The former Italian PM who withdrew his party from the ruling party’s coalition government and may force an unwanted election. Also, today ECB’s Lagarde and Panetta will participate in the EuroGroup meeting which may provide comments on the economy / currency. Bias to buy EUR on dips below 1.2 vs US$. Support lowers 1.2030 with key support at 1.1976, while resistance lowers to 1.2109.

GBP weakens amid risk-off sentiment and post-Brexit financial services talks. GBP struggled against a stronger US$ ahead of the US inauguration despite the positive acceleration of UK vaccination campaign. Markets remain concerned about the prospect of further violence on Wednesday and coupled with US weak economic performance has prompted further US$ safe haven buying. The UK’s lockdowns and vaccination campaign are showing positive signs of beating the effect of the new contagious virus variants. Bias to look to buy GBP on dips. Support lowers 1.35 with now forming at 1.3625, key pivot at 1.3709 (2021 peak).