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1/5/2021 FX Market Commentary

USD Under pressure

After shaking off some pressure to start the year, the USD staged a brief rally yesterday, but that has all been erased and we are seeing multi year lows across the board. Oil has managed to rally back above 50 in the WTI, putting further pressure on the USD. There is a lot of news this week so be prepared for volatility. The Georgia senate result should be known by tomorrow morning. The US Presidential certification should play out by Thursday. And of course we see employment figures on Friday. All of that seems a bit trivial against the backdrop of Covid. The UK has gone back into deep lockdown and the conditions appear to be worsening across many western economies.

EUR

We have just seen the EUR breach the 1.2300 level and remain on target to test 1.2550. This train looks to be moving pretty strongly and will be hard to stop. With very little useful data with which to make an informed decision, technicals become much more important. As such, it makes sense to respect the trend.

JPY

USDJPY slipped yesterday with equities showing some weakness. Today, with s light recovery in stocks, USDJPY remains soft. It will be interesting to see if JPY strength takes hold and what that means for stocks. I don’t necessarily see a full carry trade unwind/ liquidity event just yet, but USDJPY is the canary and the coal mine and should be watched. A break below 100 might be a wake up call.

CAD

Oil broke out strongly today with Opec+ somehow managing to accommodate a Russian output hike, while at the same time getting the Saudis to absorb the increase via cuts. There is probably some fear factor boosting oil, as the Trump administration draws to a close and Iran faces more uncertainty. The oil market is obviously boosting the Canadian dollar today and that correlation should remain in place. We are at 3 year lows below 1.2700 and could threaten longer term lows if this continues.

GBP

Seemingly in defiance of the lockdown orders, GBP rallied alongside the EUR today. Brexit has been quickly replaced with Covid news and should be watched carefully. GBP could falter if things take yet another turn for the worse.

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