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Sterling Dives Again on Brexit Deadlock and Coronavirus Spread

Sterling opened the week broadly lower after Brexit trade negotiations missed yet another deadline. Additionally, European countries rushed to ban travel from UK as coronavirus infections worsened. Aussie and Kiwi are trailing as the next weakest on mild risk aversion. On the other hand, Dollar, Yen and Swiss Franc are the stronger ones. The economic calendar is very light in a holiday shortened week. Though, volatility might spike in thin markets.

Technically, Dollar’s rebound today set up divergence conditions in 4 hour MACD in many pairs. There is prospect of more sustainable rebound. Yet, some key near term levels need to be taken out first. Those levels include 1.2058 support in EUR/USD, 0.7507 support in AUD/USD, and 1.2928 resistance in USD/CAD. Technically, NZD/USD needs to break 0.7010 support to confirm short term topping too.

In Asia, Nikkei closed down -0.18%. Hong Kong HSI is down -0.28%. China Shanghai SSE is up 0.54%. Singapore Strait Times is up 0.09%. Japan 10-year JGB yield is down -0.0008 at 0.012.

GBP/CHF gapped down as Brexit trade negotiation missed another deadline

Sterling gaps lower as Brexit trade negotiation missed yet another deadline. European Parliament wouldn’t have time to scrutinize and approve the texts even if a deal could be reached in the next few days. Both sides have to make preparations for a “no-deal period” at least, as the end of the transition looms.

Additionally, a new variant of the coronavirus virus has plunged south-east England into a tier-4 lockdown. Countries including France, Germany, Italy, Ireland and the Netherlands introduced bans on arrivals from the UK.

While GBP/CHF gapped down today and stayed pressured through the Asian session, it’s still comfortably trading around the mid-point of recently established range. No special technical development was made as traders are, understandably, refusing to commit to a direction.

PBoC left 1-yr LPR unchanged at 3.85%, USD/CNH recovers in consolidation

China’s PBoC left the one-year loan prime rate (LPR) unchanged at 3.85% today. The five-year LPR was held at 4.65%. These benchmark lending rates for corporate and household loans were kept unchanged for the eight straight months. Some economists saw that with the economic recovery on the right track, PBoC policy focus would gradually shift away from supporting growth. Keeping LPRs unchanged would provide the base for the central bank to hike its policy rates next year.

Offshore Yuan trades a little weaker today, mainly as dollar recovers. USD/CNH continues to consolidate above 6.4968 temporary low. Near term outlook stays bearish, with another fall expected, as long as 6.5968 resistance holds. USD/CNH could have a take on 61.8% retracement of 6.0153 to 7.1953 at 6.4661 before forming a bottom.