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Intermarket:
- SP Futures 3792 (-0.66%)
- EUSTXX 3607 (-0.93%)
- Crude Oil 51.64 (-1.15%)
- US 10YR 1.19 (+1.06%)
- EurUsd 1.2190 (-0.23%)
- UsdJpy 104.11 (+0.20%)
- DAX 13945 (-1.06%)
Fed repricing, Bitcoin or Covid-19 scare? Equities are softer today and the USD is stronger. Some analysts point to potentially earlier hike in rates from the FOMC, while others point to the sell-off in Bitcoin or the rising Covid-19 cases.
It’s true that Friday, real rates rose and the first rate hike from the Fed has been moved from early 2024 to early Q3 23. Bitcoin dropped 12%. Either way, a confluence of factors is driving flows back into the USD: higher US yields of course, the decline in Bitcoin and Covid-19.
The tighter lockdowns in the UK have forced funds to pare long positions on GBPUSD, EURUSD, AUDUSD and shorts on USDJPY. On AudUsd, a break of 0.7660 will likely force even more long liquidation.
Weekend reports are not positive for UK: the Sunday Times wrote that lockdowns remain contentious and the current measures his one will be harsher than Nov. Look to Friday’s GDP as lockdowns could have caused an 8% drop in Nov. Tighter coronavirus restrictions are currently being considered by ministers, amid concerns the latest lockdown is not being followed strictly enough.
As usual, check our Weekly Call for the full rundown of this week’s themes and drivers.
Matters that Matter:
• Democrats to pursue impeachment if Trump not removed
• Goldman Sachs: To pause political contributions; may cut donations to leaders who objected to vote result
• JPMorgan: Pausing all corporate PAC donations to Republicans and Democrats for 6 months
• Mass vaccination sites open in New York City as COVID-19 batters U.S
• China’s factory prices fall at slowest pace in 10 months in December
• China sees biggest daily COVID-19 case rise in over 5 months
• Australian shoppers pre-Christmas splurge seen boosting Q4 GDP
• Brisbane lockdown to end after third day of zero new cases, NT and ACT revoke hotspot declaration
• Britain’s Sunak says higher interest rates could lift cost of repaying govt debt -report
Majors Weekly View:
USDJPY
- Prices posted a bullish engulfing last week, with gains of 1 ½ Big Fig. As such, the call for this week switches to bullish.
- US yields driving prices, strengthening USD.
- Bullish outside week
- Covid-19 still out of control it seems.
EURUSD
• Prices posted the 2nd weekly shooting star in a row, once again suggesting a bearish bias for this week.
• US Yields driving strength into USD
• 3.5 Bln option expiries this week at 1.2200
AUDUSD
• Prices posted further gains last week, reaching a 2 1/2 year high at .7821. However, sellers returned on Friday, dampening the bullish tone. Although the trend of higher weekly lows remains intact, we suggest playing the break of .7660 to the downside, or buying up through .7821.
• USD short covering pressured Aud.
• Democrat move to impeach Trump could delay fiscal stimulus.
• .7660 key level.
GBPUSD
• Prices posted fresh 2 ½ year highs last week at 1.3705. However, prices remained contained within a tight range and selling on Friday has dampened the bullish picture. As such, we suggest selling through 1.3507.
• USD strengthening on US yields.
• Virus control key for economic recovery.
FX Weekly Relative ATR Grid
Comment: Ranges were uneven last week, with expansions in Aud, Nzd and JPY, but dull performance on GBP in particular. We would expect a volatility expansion this week on GBPUSD/GBPJPY