Thursday December 31st, 2020

The US$ index ends 2020 down 7% as markets increase risk-on sentiment and diversify away from safe haven US$. The US Senate Majority leader McConnell rules out a quick vote on the House Bill for US$2k covid-19 relief checks. The US Senate is also expected to veto the defense bill in a motion set for the weekend.  The US administration announced increased tariffs on EU products, targeting plane parts and wines from France & Germany over the ongoing aircraft subsidies dispute. In other news, China has given conditional approval for its first vaccine for general use and is planning to vaccinate up to 50 million people by February. CNY strengthens 6.5% in 2020 prompting the state banks to buy US$ in an attempt to slow the CNY advance. CNY fell 0.3% while Asian currencies are up 0.1% vs US$ on average. Trading currencies continue to rally with JPY & MXN up 0.12%, NOK up 0.26%, NZD up 0.5%, AUD rallies up 0.7% while the outlier ZAR drops 0.4% on domestic virus concerns.  Intraday expect markets to remain thin with the investors focusing on US Jobless claims for direction.

Oil prices continue to hold steady as risk-on sentiment continues and vaccine rollouts spurs demand hopes. Focus remains on Monday’s OPEC meeting where output is set to increase +500kbpd and additional output is expected to be announced for February. C$ has strengthened 1.95% in 2020, and rallies to near 2 ½ years highs in the last trading day of the year. Our bias is to buy US$ on dips towards 1.27 with the prospect of increased oil output and possible BoC response in 2021 to a rallying C$. Support at 1.2684 (Dec17th) resistance lowering to 1.2830.

Euro tests a new 2020 high at 1.2309 driven by risk-on sentiment and post Brexit optimism. Euro continues to strengthen as investors diversify away from the US$, but in thin holiday markets fresh buying appears to be sidelined. Into 2021 expect ECB to express concern about the strengthening Euro within a weak economic conditions across the EU. Intraday US Jobless data will provide direction ahead of the New Year holiday on Friday. Support at 1.2125 with resistance rising to 1,2310 if breached look for 1.2385.

GBP extends gains towards multi-year highs boosted by the Brexit agreement. GBP continues to strengthen on post Brexit optimism while ignoring current economic conditions and covid lockdowns. The UK posted record high virus infections, forcing the government to effectively put 75% of the population into its highest-level tier 4 lockdowns. Our bias to see a potential rebound in GBP towards 1.35 level as the UK focuses on building new trade deals with the US and others post Brexit. Support 1.3515, with resistance at 1.3773 (May2018).