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Intermarket:
- SP Futures 3921 (+0.40%)
- EUSTXX 3671 (+0.47%)
- Crude Oil 58.35 (+1.04%)
- US 10YR 1.16 (-0.26%)
- EurUsd 1.2126 (+0.07%)
- UsdJpy 104.55 (-0.01%)
- DAX 14073 (+0.55%)
Volatility in risk assets is once again decreasing, despite signs of progress on Biden’s fiscal stimulus package and also hints from Fed’s Kaplan that they will allow a temporary inflation overshoot. Equities have posted fresh all-time highs but caution is warranted. In terms of earnings, Cisco’s 3Q revenue forecast topped estimates while Twitter added fewer new users in 4Q. The USD softened again while UST bonds gained, pushing the 10-year yield back down to 1.16%.
Volatility has been decreasing this week, perhaps ahead of the Chinese New Year holidays, with Taiwan away today and China, Japan, South Korea away tomorrow. For now the reflation trade is alive and well, but the rally in risk assets really seems to be reaching extended levels. Powell’s speech today may stir up some volatility.
The bull run in crude oil also continues. Brent rose to $61.09/bbl, having closed above the $60 handle for the first time in a year just a day ago. This rise in Crude is aiding CAD.
Looking ahead: we get Germany’s CPI and US CPI. ECB’s Lagarde and Panetta, Fed chair Powell, BOC’s Lane and BOE’s Bailey are speaking.
Matters that Matter:
• Biden, meeting business leaders, backs stricter income limits for stimulus checks
• Reddit user claiming to be Tesla insider now says bitcoin posts were not true
• China’s factory prices snap year of declines as demand recovers; Jan PPI YY, 0.3%, 0.4% f’cast, -0.4% prev
• CN Jan CPI MM, 1.0%, 1.0% f’cast, 0.7% prev.
• RBNZ Gov Orr: Economic shock from Covid-19 pandemic continues around the world; NZ economy is recovering but many risks are still with us; concerned about the risk of sharp correction in the housing market and the harm this could do; reintroduction of LVR rules is designed to head off growing financial stability risks, particularly among highly leveraged investors
• BOJ policymaker highlights cost of huge asset buying, signals tweak in March review
• Italy’s parties enthuse over Draghi, 5-Star postpones online vote
Majors 1-Day View:
USDJPY
- Prices declined by ¾ Big Fig on Tuesday, posting the 2nd lower daily high & low in a row. As such, signals remain bearish for Wednesday.
- Bids reported from 104.50, more 104.40, 104.10
- Resistance and offers from 104.70 with option plays at 105.00
- US Yields still supportive
EURUSD
• Prices posted the 2nd higher daily high & low in a row on Tuesday, with gains of over ¾ Big Fig. As such, signals remain bullish for Wednesday.
• Expectations of US fiscal package helping risk assets and weighing on USD.
• 1.2100 now support.
AUDUSD
• Prices posted the 3rd higher daily high in a row on Tuesday, but gains were rather muted. As such, the bias remains bullish to Wednesday but perhaps buying into dips is a better strategy.
• USD weakness, strong commodities supportive
• Offers reported at .7750 with technical resistance noted at .7760.
GBPUSD
• Despite the continued overbought signals, the Pound posted the 3rd higher daily high & low in a row on Tuesday, reaching fresh 2 ½ year highs. As such, the outlook remains cautiously bullish for Wednesday.
• Range top broken on USD weakness.
• Next major resistance 1.4300.
FX Relative ATR Grid
Comment: Volatility remains largely compressed in FX, with GBP contracting even more. Only USD still has decent ranges on selected pairs. This suggests caution as intraday trading conditions are more challenging.
Relative Strength Grid
Comment: Current trending indications remain GBP strength, CHF weakness, EUR weakness. Strongest 1-day momentum signals were USD (weakness), CAD (weakness), NZD (weakness) vs. CHF (strength).