Tuesday December 22nd, 2020

Risk-on sentiment continues to ease amid the spread of the virus mutation. Virus concerns saw markets consolidate into the holidays, exiting riskier investments, benefiting safe haven US$. Overall markets are calmer after the US Congress passed the US$900 bln relief stimulus bill. GBP & EUR remain under pressure as the spread of the virus mutation closes boarders and increased lockdowns. CNY holds steady, AUD weakens despite strong sales data, ZAR drops on increased virus concerns while analysts target JPY to 100 despite policymakers’ concerns. CNY is down 0.1% while Asian currencies are down 0.2% on average vs US$. Trading currencies remain volatile with ZAR down 0.2%, NOK down 0.4%, AUD down 0.5%, with both NZD & MXN down 0.6% vs US$. Focus shifts to US GDP, Personal Consumption Expenditure as markets slow into the holidays.

Crude prices are down 1% remaining under pressure on demand concerns as the new coronavirus strains initiate fresh lockdowns and boarder closures. In January OPEC will be increasing output by ½ million barrels per day likely to keeping pressure on oil prices into the new year. C$ weakened to nears 3-week lows on weaker oil, year-end US$ demand and safe haven US$ buying. Ahead of the holidays we may see further C$ weakness as markets consolidate and risk-on sentiment continues to ease.  Support rises to 1.2800, with resistance at 1.2885, if breached expect a retest of 1.2955. 

EUR rebounds above 1.22 amid virus concerns as markets calm after the US Congress passes the covid relief stimulus and avoids a government lockdown. In the midst of covid lockdowns the bloc of 27 EU states approved the Pfizer vaccine and vaccinations are expected as soon as Sunday. German Gfk Consumer Confidence Survey came out better than expected, adding support to Euro. Focus will remain on Brexit developments, UK boarder lockdown & US data releases. Support at 1.2125 with resistance 1,2265 if breached look for 1.2350.

GBP bounces strongly off Mondays lows on Brexit hopes. GBP volatility continues as the currency continues to singularly focuses on Brexit, ignoring the UK boarder closures and EU initially rejecting the UK Fisheries proposal. The EU chief negotiator is set to speak today, with markets hoping to see signs of compromise on fisheries. The UK which is isolated due to the EU lockdowns and will be seeking to open its trade routes as soon as possible. Domestically UK GDP & Business investment data came out better than expected, while Public Sector Net Borrowing grew more than expected. Focus remains on Brexit updates, expect GBP to remain volatile.  Support at 1.3104 (Nov12th) with resistance at 1.3450, if breached look for 1.3773 (May2018).