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The wave of risk-seeking sentiment

USD

Yesterday’s cheerful sentiment reflected the continued economic support that comes with the Covid-19 relief bill that was signed by President Trump. However, the Dollar Index which tracks the greenback against a broad basket of major currencies closed 0.13% higher on Monday. Earlier this morning, according to data released by the Commodity Futures Trading Commission, net short non-commercial positions on the dollar surged in the week ending Dec. 21 to $26.6 billion, the highest level since March 2011, which signifies that investors and traders are betting on a downtrend in 2021.

EUR

The EUR rose 0.26% against the greenback on Monday as traders came back to work from the Christmas holiday amid an upbeat sentiment with the Brexit trade agreement and the U.S aid package bringing a massive relief into the FX markets. Earlier today, the EUR/USD extended Monday’s recovery moves as traders flirt with the highest level of 2020.

GBP

Sterling rose 0.72% following a two-day decline on Monday, touching a level unseen since May 2018, with investors having taken profits following the confirmation last week of a Brexit trade deal. The “soft” signing of the Brexit trade agreement was a sign of relief for the FX markets, which had spent the last few months pricing in Brexit rumors. From now, it is likely to be choppy trading sessions ahead, since investors are still trying to figure out whether or not the U.K economy will move forward unhindered.

JPY

The wave of risk-seeking sentiment after U.S President Donald Trump signed a Covid-19 relief package into law dictated the JPY’s price action on Monday. The Japanese yen retreated 0.13% against the U.S dollar amid a light trading session. Elsewhere, the Bank of Japan has indicated that it will review its stimulus program, but it is unclear if this means more significant moves towards 2% inflation. The Covid-19 pandemic has caused a severe economic downturn which has pushed inflation even lower, raising fears of deflation. A light economic calendar leaves risk appetite subject to the prevailing mood and American political headlines.

CAD

The Loonie inched up 0.12% on Monday against its U.S counterpart, gaining favor once more as a vehicle for risk appetite in FX markets. With the news flow turning positive after U.S President Donald Trump signed the fiscal stimulus deal, as well as optimism on the vaccine front with the U.K likely to approve the AstraZeneca COVID-19 vaccine later today, the FX market could see the Canadian dollar rally resuming.

MXN

The Mexico peso tumbled 0.8% against the USD on Monday after the Mexican government issued during the weekend new rules that would limit fuel imports of private firms. This was a controversial move that is argued to be intended to boost the dominant position of state oil firm Pemex. The new regulations would also limit incentives for private companies to invest in infrastructure to transport and store fuels. In general, the measure could have negative implications for investment in the country, threatening the pace of recovery of the Mexican economy.

CNY

The Chinese yuan closed 0.12% up against a weaker greenback on Monday. Earlier this morning, China’s banking and insurance regulator urged consumers to guard against excessive borrowing spurred by internet platforms, hiding the real costs of such debt. On that note, in November, Beijing had started a relentless crackdown on the internet finance sector, issuing guidelines and rules to regulate online financial activity following a spate of scandals, frauds, and high-profile peer-to-peer (P2P) failures.

BRL

Yesterday, in the absence of headlines and amid a low liquidity trading session, the BRL was very sensitive to the expected year-end unwinding of over hedge positions by local banks. The BRL closed down 0.56% against the USD on Monday after Brazil’s Central Bank reported a large interest in USD as local banks unwinding their over hedge positions, which implied an increase in the volatility and Real’s depreciating. Meanwhile, the Brazilian shares index, Ibovespa, rebounded strongly to a nearly historical high – registered on January 23rd.

Quick Insights

USD: Net short non-commercial positions on the dollar surged to the highest level since March 2011

USD: Net short non-commercial positions on the dollar surged to the highest level since March 2011

EUR: The Brexit trade agreement and the U.S aid package bringing massive relief into the FX markets

EUR: The Brexit trade agreement and the U.S aid package bringing massive relief into the FX markets

GBP: Sterling rose 0.72% following a two-day decline on Monday, touching a level unseen since May 2018

GBP: Sterling rose 0.72% following a two-day decline on Monday, touching a level unseen since May 2018

JPY: The Bank of Japan has indicated that it will review its stimulus program

JPY: The Bank of Japan has indicated that it will review its stimulus program

CAD: The FX market could see the Canadian dollar rally resuming

CAD: The FX market could see the Canadian dollar rally resuming

MXN: Mexico government issued during the weekend new rules that would limit fuel imports of private firms

MXN: Mexico government issued during the weekend new rules that would limit fuel imports of private firms

CNY: China’s banking and insurance regulator urged consumers to guard against excessive borrowing spurred by internet platforms

CNY: China’s banking and insurance regulator urged consumers to guard against excessive borrowing spurred by internet platforms

BRL: The expected year-end unwinding of over hedge positions by local banks

BRL: The expected year-end unwinding of over hedge positions by local banks

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