FX Update: What pulled the plug on USD bears and this market?

The G-10 + CNH rundown

USD – Was this a “buy the fact” on the US stimulus finally moving forward? Or is this simply an overdue consolidation as the last marginal buyer of risky assets was finally found late last week before any excuse (Covid mutations in particular) was good enough to trigger profit-taking and a backup in an oversold dollar?

EUR – the EURUSD pair likely suffering stop-loss order flow on the failure of the important tactical 1.2175 area, with perhaps 10% of Brexit concerns wearing off on the single currency. The 1.2000 level is key to maintain for an upside focus, and we likely need to see trading conditions in early January before having a better feel for the market.

JPY – a safe haven bid coming in for US treasuries and risk sentiment on the defensive is seeing JPY higher in most pair, but lower against King Dollar.

CNH – Some warning for USD bears was already partially in place late last week as USDCNY entirely sat out the further extension in USD weakness. China seems to have made the point that it didn’t want the broad CNY to strengthen beyond the range highs established since 2018.

GBP – lower in part as the UK extremely isolated by this latest Covid-19 mutation new and the cutting off of travel links to the UK, but also as no progress being made on Brexit. After an enormous correction in GBPUSD, the hill to climb for sterling optimists looks suddenly very steep and tall.

CHF – very minor strength coming in here – a disappointment given nearly perfect storm of developments (Brexit, virus, risk-off) if CHF is supposed to be a safe haven. Gold and Nasdaq-100 “barbell” trade (SNB’s reserves) is to be kept in mind as a possible mover of CHF – with both sharpy lower from this morning’s highs.

AUD – as a leader on the way up versus the USD, not a major surprise to see it leading on the  way down. And because of the deepening trade policy showdown with China, the massive further spike in iron ore overnight not helping

CAD – mentioned in my most recent update last week that I would like to “eventually “ get contrarian on AUDCAD upside – eventually may have already arrived if this reversal sticks – the mood shift looks pretty profound here.

NZD – the AUDNZD pair still contending with the 200-day moving average after not able to consistently take it out last week. Risk of consolidation back lower there, but still looking for signs that the pair is turning for a structural move higher.

SEK – no surprise that the ugly reversal in the mood for risk sentiment is taking the krona down with it. If the ugly mood continues in thing trading conditions here into the end of the year, the sudden risk of a squeeze could return – watch behaviour in EURSEK if 10.30 falls.

NOK – with fresh Covid concerns taking down oil prices six notches, the NOK goes from outperformance to weakest of the lot suddenly – look out below on end-of-year effects and thin holiday markets setting in motion a squeeze above 10.75-80 in EURNOK.

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