December 21, 2020
- Another Brexit deadline comes and goes
- Congress still working on COVID-19 Relief deal
- US dollar back with a vengeance
FX Ranges at a Glance:
Source: IFXA Ltd/RP
FX Recap and Outlook: The reports of the US dollar’s death are greatly exaggerated. Trader’s couldn’t get enough of the greenbacks, in a wild, choppy, and thin overnight session. US Congressional leaders got their act together and agreed to a $900 billion-ish COVID-19 Relief package. The news was widely expected so traders who had “sold USD on rumours, bought USD on fact.”
The EU and UK saw another Brexit deadline come and go. The UK economy is valued around $2.83 trillion and the EU economy at $18.8 trillion. Both sides are ready to walk over fishing rights which are worth a mere £987 billion to the UK. And that is the definition of “cutting your nose off to spite your face.”
Traders were also spooked by a COVID-19 mutation rapidly spreading throughout the UK, which officials say is more contagious than the original. European’s have closed their borders to freight while many countries, including Canada, closed airports to UK travelers.
Asia equity markets closed modestly lower, but European bourses are deep in the red, and S&P futures suggest Wall Street will have a bad day.
GBPUSD dropped 2.5% on the EU/UK’s failure to come to terms on a Brexit deal, plunging from 1.3530 at Friday’s NY close to a low of 1.3172. The latest coronavirus news exacerbated the drop, especially with Europe closing their borders to UK traffic. The next Brexit deadline is Christmas Day.
EURUSD fell to 1.2130 from 1.2243, in part due to the Brexit fall-out, but mainly due to broad US dollar demand, washing out weak EURUSD long positions. The Equity market sell-off didn’t help sentiment, either.
USDJPY traded in a 103.26-103.88 with safe-haven demand for yen, and bouncing US Treasury yields driving price action. There are rumours that Prime Minister Suga told the Finance Minister to ensure USDJPY does not go below 100.00. Later, it was learned that the comments were made after the US election in November.
AUDUSD and NZDUSD fell on the back of risk aversion fueled US dollar demand and alongside a drop in commodity prices.
USDCAD rallied in tandem with the free-falling antipodean currencies, and because of the 4.85% drop in WTI oil prices.
Fears that the new coronavirus strain will put a crimp in crude demand, combined with rising production from Opec and Libya also weighed on prices. Ontario is expected to be fully locked down starting Christmas Eve, and being the most populated province, is another Canadian dollar negative.
USDCAD Technicals: Short-term technicals are pretty much useless at this time of year. So with that caveat: The USDCAD downtrend from March is intact while prices are below the 1.3130-40 level. And looking for another test of double-bottom support at 1.2670. For today, USDCAD support is at 1.2850 and 1.2800. Resistance is at 1.2950 and 1.2990. Today’s Range 1.28550-1.2950
Chart: USDCAD daily
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank