Wednesday January 6th, 2021

Risk-on sentiment drives US$ lower as Dems are expected to win both seats in Georgia. The US$ hits its lowest level in almost 3-years as markets anticipate that Dems will win both runoff seats in Georgia, fueling risk on sentiment. In DC the US President Trump will address protesters at the same time Congress is expected to affirm President-elect Joe Biden election victory. Domestically, the US President signed an executive order on Tuesday banning transactions with 8 Chinese-connected apps, including the Alipay and Tencent holdings ltd. In other news as coronavirus cases and deaths continue to rise, British scientists expressed worry about the South African virus strain resistance to vaccines. CNY holds flat & Asian currencies extend just 0.1% vs US$. Trading currencies remain volatile in the risk-on environment with JPY down 0.1%, AUD, MXN & NZD up 0.6%, NOK up 0.7% vs US$, while ZAR is down 0.1% due to new covid strain concerns. Intraday focus remains on the final Georgia election results, US Congress electoral votes and the FOMC minutes. On a data front, US ADP Employment Change (expected to slow in the private sector), US Services PMI and US Factory orders. 

Oil prices extend to 11-month highs, up +1% after Saudi Arabia agreed to reduce output by 1mio bpd in Feb & Mar at the OPEC meeting. Saudi Arabia made the decision to cut its output in order to persuade other OPEC producers to hold output steady. C$ tests almost 3-year highs on stronger oil prices and risk-on US$ selling. Domestically the TSX approaches record high levels, while Toronto home sales soar 64.5% YoY in dec as condo sales rebound. Focus remains on US politics and data releases for intraday direction. Support shifts to 1.2628 if breached 1.2522 (Apr2018) resistance lowering to 1.2755.

Euro extends its gains to Apr 2018 highs as risk-on trading keeps pressure on the US$. In the short-term markets are singularly focused and continue to ignore EU domestic data releases, lockdown extensions and surging covid cases. Today saw a flurry of disappointing data across the EU as CPI and Services PMI fell below expectations, on a brighter note EU PPI did come in better than expected. Out shortly markets will watch the key German Harmonized Index of CPI. On the immunization front, the EMA is set to approve the Moderna’s vaccine as soon as today. Support rises to 1.2280 with resistance higher at 1.2400, if breached look for 1.2555 (Apr2018).

GBP strengthens amid ongoing US$ weakness and ahead of US Data, the FOMC and BoE Governors speech. The FOMC minutes today will be watched for clues on future policy, specifically any additional bond buying. BoE Governor Bailey speech will be monitored for its direction in a post-Brexit environment and its expected support the economy during the pandemic. PM Johnson announced that latest lockdown will be a “gradual unwrapping” as virus cases domestically continue to surge. Support 1.3515, with resistance at 1.3690, if breached look for 1.3773 (May2018).