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January 11, 2021

  • US changing Taiwan stance and goading China
  • FX turns risk-averse on rising COVID-19,

USDCAD open (6:00 am ET) 1.2768-72,  Overnight Range 1.2702-1.2826

FX Ranges at a Glance:

Source: IFXA Ltd/RP

FX Recap and Outlook:  President Trump will never be described as “gracious in defeat.”

He instigated the mob attack on the Capitol last Wednesday and has since upped his game.  This time he is picking a fight with China.

The out-out-going Trump administration increased its aggressive action towards China since December. They banned Chinese companies’ stock listings and Chinese apps, like WeChat Pay.  They incensed Beijing further when the US Navy went for a cruise through the Taiwan Strait on New Years Eve. Saturday, they appeared to scrap the  1979 Taiwan Relations Act, when Secretary of State Mike Pompeo announced that he is lifting all self-imposed restrictions on executive branch agencies’ interactions with their counterparts from Taiwan.

The editor of the China Global Times tweeted that if this is the new starting point of US Taiwan policy, it also starts the count-down of the survival of the Taiwan authority.

Risk aversion sentiment is elevated by US political theater. The Democrats say they plan to initiate impeachment proceedings today, if Vice President Pence doesn’t invoke Article 25 and remove Trump from office.

COVID-19 cases continue to rise.  The US had 484,789 new cases on Saturday and Sunday, with officials blaming a new strain of the virus for the increase. The UK government is considering tighter lock-down restrictions.  Germany reported doctors and nurses in some regions were being overwhelmed.

The US dollar is getting an added boost from reports that President-elect Joe Biden plans to announce a multi-trillion-dollar stimulus plan as early as Thursday, which has pushed 10-year US Treasury yields to 1.116% overnight.   Yield advantage-USA.

EURUSD dropped from 1.2225 at the Asia open to 1.2155 just before the start of NY trading.  The rise in US Treasury yields, combined with COVID-19 concerns and escalating US/China tensions fueled the move.  The downside pressure may have been exacerbated because of long EURUSD positions getting squeezed.   However, the movie is still a correction while prices are above 1.2120.

GBPUSD suffered from all the same reasons as EURUSD, with prices dropping to 1.3460 from 1.3560.  GBPUSD is also suffering from concerns around the current strict COVID-19 lock-down measures, and profit-taking following the Brexit deal.

USDJPY climbed to 104.28 in NY,  from 103.80 in Asia, driven by the higher US Treasury yields, which overshadowed negative risk sentiment from the US/China tensions.

AUDUSD did not get any traction from November Retail Sales which rose 7.1% m/m. Overall US dollar demand sank AUDUSD and NZDUSD.

USDCAD tracked the antipodean currencies and failed to garner any support from the steady to firm crude oil prices.  USDCAD surged through resistance in the 1.2800-10 area and prices climbed to 1.2825 in NY trading.  The move followed the EURUSD test of support at 1.2150.  USDCAD is supported by negative risk sentiment and higher US interest rates.

The uncertainty around the surge in COVID-19 cases across the country suggests that this outlook will not be very enlightening.  USDCAD direction is clearly tracking EURUSD moves, as evidenced by the following chart.

The quarterly Bank of Canada Business Outlook Survey is due today.

USDCAD Technicals:   The intraday USDCAD technicals are bullish while prices are above 1.2740, lwith the break above  the 1.2800-10 resistance area targeting 1.2870.   For today, USDCAD support is at 1.2790and 1.2740.  Resistance is at 1.2850 and 1.2870.  Today’s Range 1.2770-1.2860

Chart: USDCAD (blue) and EURUSD 4 hour

  Source:  Saxo Bank

FX open (6:00 am EDT) High, Low, and previous close

Source:  Saxo Bank