Tuesday December 29th, 2020

Risk on sentiment rally continues after the US House passes a new $2k paycheck stimulus with 2/3rd majority and turns down the Presidential defense bill veto. Equity, currency and oil markets extend their gains and Japan’s Nikkei hitting 30-year highs driven by fresh US Stimulus hopes. CNY and Asian currencies strengthen 0.2% vs the US$ on average. Trading currencies extend gains vs US$ with JPY up 0.15%, NOK & AUD up 0.3%, MXN & NZD up 0.5%, while ZAR is down 0.15 on rising domestic covid cases keeping the currency under pressure. The shortened trading week and lack of fresh economic data will see markets focus on the US Senates response to the US$2k paycheck stimulus.

Oil prices strengthen with Brent Crude holding above US$51pb on hopes that the US pandemic stimulus will help spur demand. Investor focus will be shifting to Jan4th OPEC meeting, with expectations of output increases of 500kbpd, and the potential of additional output increases into Feb. C$ edges higher supported by stronger oil prices, rising risk-on sentiment and a weaker US$. Intraday expect US Stimulus updates to drive the market direction. Support holds at 1.2780 (Dec21st), if breached look for with 1.2684 (Dec17th) resistance at 1.2876.

Euro continues to edge stronger as risk-on sentiment from US pandemic relief stimulus and the start of the EU vaccination campaign. The prospect of additional US stimulus saw European equity markets rally and EUR rebound above 1.22 vs US$. The EU also launched its vaccination campaign on the weekend to vaccinate the bloc’s 450 million people and is considering approving both the Moderna and AstraZenca vaccines which are easier to transport. With the shortened trading week trading volumes are expected to remain thinner, focus the US Senate’s response on the new US stimulus proposal. Support at 1.2125 with resistance 1,2265 if breached look for 1.2350.

GBP retests 1.35 vs US$ finding support from a weaker US$, but the pound is somewhat under pressure post-Brexit agreement. The initial euphoria over the Brexit agreement has eased amid concerns about the non-inclusion of the key services sector in the agreement. The EU has tentatively ratified the Brexit accord and the UK government is expected to pass the agreement in a vote on the 30th Dec. Domestically the UK is expected to approve AstraZeneca Covid vaccine with Cabinet Office Minister Gove saying that the vaccine could accelerate the lifting of current covid19 restrictions. Brexit is all but complete and the focus is switching back to the current lockdowns and possible struggles for the UK developing new trade deals with the US and others. Support 1.3425, with resistance at 1.3620, if breached look for 1.3773 (May2018).