Thursday December 17th, 2020

The US$ remains under pressure as risk-on sentiment continues as US stimulus optimism grows. The Fed chair says the case for more pandemic aid is very strong, McConnell made the case Wednesday to Rep’s for a stimulus deal and Biden calls it a down-payment ahead of more spending in 2021. Top Reps and Dems both agree a stimulus bill needs to be passed and they appear close to a compromise a US$900bln as the Friday deadline looms. Optimism for the stimulus has seen unwinding of safe haven US$, but surging virus cases across North America/Europe may cause a US$ rebound after a US stimulus agreement has been absorbed. The US$ Index hit its lowest levels since April 2018, seeing the US$ falling to multi-year lows vs GBP, EUR, AUD, NZD, SGD, SEK, TWD & THB. In Asia, CNY is flat vs US$, while Asian currencies rally 0.25% on average vs US$. Trading currencies rallied seeing MXN up 0.3%, JPY up 0.4%, ZAR, AUD & NZD up 0.8% and NOK leaps 1.1% vs US$. NOK strength is a combination of a weak US$ and speculation Norway may be the first central bank to raise rates H1/22. Intraday US Stimulus and a flurry of US data releases including Jobless claims, Housing Starts, Phili Fed Manufacturing survey will all help provide direction to the markets. 

Oil prices steadily extends their gains towards 9-month highs as crude stockpiles fall and Washington progresses on pandemic stimulus. C$ remains active within its current 1.27-1.28 range, initially weakening Mid-Wednesday, but rebounding after EIA crude stockpiles fell and US stimulus optimism grew. Domestically CPI grew to 1% Nov, Wholesale trade grew by 1% Oct vs Sept, its 6th consecutive monthly gain. Today markets will focus on Canadian ADP employment Change and New Housing Price index today. Momentum still favours C$ as yearend US$ buying demand is being absorbed by investors risk-on sentiment. Support 1.2685 if breached look for a potential move to 1.2522 (Apr 2018) while resistance lowers to 1.2800. 

Euro hits its highest level since 2018 vs US$ amid Brexit and US Stimulus optimism. Risk on sentiment continues to drive Euro stronger, but speculation is growing that Euro may have come too far – too fast. Expectations are that we are in a buy the rumour sell the fact scenario, as Euro rallies on Brexit and US stimulus optimism. With surging coronavirus cases, EBC action and weak economic conditions we anticipate we may see markets reverse into the new year after Brexit/US stimulus effects fade. Bias to sell Euro on current rallies and look for a rebound towards 1.2050 levels into Q1/21. Intraday Brexit – US Stimulus – US data releases will provide intraday direction. Support rises to 1.2175 with resistance 1.2244, if breached we could see an extension towards 1.2400.

GBP extends its volatile rally through 1.36 vs US$, driven by Brexit and risk on sentiment. Markets remain positive on Brexit negotiations with the EU Chief Negotiator saying that they are making good progress. The UK negotiators appear less positive saying that the sides were still far apart. The BoE left rates unchanged, and there is little else it can do after raising bond-buying by GBP 150bln in their last meeting. The BoE appears to be keeping its powder dry and is waiting to see the outcome of Brexit negotiations to determine their next steps. Expect volatility to remain high as Brexit counts down to Dec31st deadline and a Brexit decision.  Support at 1.3104 (Nov12th) with resistance at 1.3773 (May2018), if breached the potential to 1.3935 (Apr2018)