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Intermarket:
- SP Futures 3794 (-0.61%)
- EUSTXX 3616 (-0.17%)
- Crude Oil 52.35 (+0.19%)
- US 10YR 1.13 (+2.44%)
- EurUsd 1.2154 (-0.53%)
- UsdJpy 104.23 (+0.26%)
- DAX 13970 (-0.28%)
After yesterday’s correction, risk sentiment might improve today as we approach the London Open. USD strength is slowly decreasing and the recovery in equities during yesterday’s NorAm session suggests potential near-term strength.
Treasury yields remain the focal point: with 10 year rates rising to their highest level since March, traders are starting to believe the FED may be overly dovish (and Kaplan’s comments yesterday support this view alongside Bostic, who said the central bank is not locked into a paradigm and could change their outlook).
Some positive news on the vaccine front: the FT wrote that Pfizer/BioNtech has increased its production target to 2 billion doses this year (from 1.5). The news comes after the recent announcement from Moderna that it is also increasing its production from ‘at least 500 million doses’ to ‘at least 600 million doses’.
Looking Ahead: BOE’s Broadbent and Fed’s George and Rosengren are speaking today.
Matters that Matter:
• Democrats barreling toward impeaching Trump in wake of Capitol siege
• CDC says 9 million Americans now vaccinated as U.S. states scramble
• Wall Street firms reduce exposure to Chinese telcos as U.S. ban approaches
• China sees new COVID-19 cases drop, but push on with new curbs
• Japan to widen state of emergency beyond Tokyo as virus surges -media
• UK consumer spending slides in December as pandemic flares: Barclaycard
• GB Dec BRC Retail Sales YY, 4.8%, 7.7% prev
• Moody’s: Negative outlook for Asia Pacific sovereigns in 2021 as pandemic shock amplifies vulnerabilities
• Fed Kaplan: Next couple of months will be challenging because of virus resurgence; GDP growth in Q1 will probably be positive; expects 2021 GDP to grow 5%; will be working our way back to normal in 2021; unemployment to fall to 4.5-4.75% by end of year; it is possible if there is more fiscal stimulus there will be revisions to outlook; hopeful that this year will meet substantial progress bar for tapering QE; strongly against use of negative interest rates in US.
• The Australian Capital Territory to lift restrictions on those urban areas noted above that border Sydney to the north and south.
Majors 1-Day View:
USDJPY
- Prices posted the 3rd higher daily high & low in a row, maintaining the bullish bias into Tuesday.
- US yields driving prices, strengthening USD.
- Bids reported at 104.00
- Market dismissed Fed Kaplan’s hawkish comments.
EURUSD
• Prices posted the 3rd lower daily high & low in a row on Monday, with losses of 1 Big Fig. This keeps the outlook bearish into Tuesday.
• US Yields driving strength into USD
• Bids reported at 1.2130, resistance 1.2220/30.
AUDUSD
• Selling dominated sentiment on Monday, prices posting the 3rd lower daily high in a row with losses of 1 Big Fig. As such, the outlook remains bearish for today.
• AUD stable after yesterday’s drop.
• Resistance and offers reported at .7725/30.
GBPUSD
• After a narrow range week, prices broke through last week’s lows on Monday to post 8 day lows, but buyers returned into the close, prices recovering most of the day’s drop. Hence, the outlook remains bearish but with caution for today.
• USD strengthening on US yields.
• Controlling Covid-19 remains key to economic recovery.
FX Relative ATR Grid
Comment: It was all about USD on Monday, which posted a volatility expansion. The laggard is GBP which broke last week’s lows but posted volatility contractions across the board.
FX Relative Strength Grid
Comment: the main signals going into Tuesday are USD strength vs. NZD, AUD weakness.