For instant updates, follow FCI Markets on Twitter
Intermarket:
- SP Futures 3765 (-1.36%)
- EUSTXX 3604 (-0.50%)
- Crude Oil 52.98 (+1.39%)
- US 10YR 1.13 (+2.17%)
- EurUsd 1.2140 (-0.65%)
- UsdJpy 103.79 (-0.15%)
- DAX 13881 (-0.91%)
Markets are displaying the typical “buy the rumour, sell the fact” into Friday: after rising all weak, equities are weaker into Friday after President-elect Biden’s stimulus proposal which came in slightly lower than consensus at 1.9Trl vs 2 Trl expected. With more stimulus down the road (for infrastructure and climate change), equities have reason to remain afloat in the medium term despite this immediate pullback on profit taking.
At the same time, FED’s Powell was quite vocal in saying “now is not the time” to taper bond purchases or raise rates. This is yet another reason for profit taking on the “reflation trade”. Jobless claims and continuing claims were much worse than expected, so perhaps Powell is right.
Finally, in Europe, Germany is said to be considering tougher measures against Covid-19 spread. France extended its 6 pm curfew to the whole country. UK is ramping up its vaccine push and also tightening measures on international travellers, with focus on virus mutations. Italy’s PM Conte is hard at work trying to avert a government breakup and snap elections.
Looking Ahead: In Germany, the CDU party convention starts today with the potential leader candidates speaking tomorrow. The CDU party will elect a new party leader to replace Merkel. That person may potentially become Chancellor after the September parliamentary election, when Merkel will officially step down.
Matters that Matter:
• President-elect Biden: Unveils $1.9trln stimulus package proposal; package includes $415bn to bolster the response to the virus; payment checks would be issued for $1,400 - topping up the $600 checks issued; calls for $15/hour min wage, renewed paid leave rules; $350bn in state aid and $160bn for vaccines
• Fed’s Powell: “Not the time” to discuss any change to bond purchases
• Trump administration takes final swipes at China and its companies
• China COVID-19 cases surge to over 10-month high; travel discouraged
• RBNZ Gov Orr: Apologises for data breach; recent malicious and illegal breach of a file sharing app used by Bank is significant and has full attention; the stand alone file transfer application system has been secured and closed; investigation underway and working directly with directly affected stakeholders who information may have been breached
Majors 1-Day View:
USDJPY
- Prices traded sideways for the 2nd day in a row on Thursday. As such, signals are weak and we suggest remaining square until either 104.40 or 103.50 breaks.
- Downtrend from March remains in play.
- US yields supportive.
EURUSD
• Prices posted a fresh weekly low at 1.2111 on Thursday and despite buyers returning to the market into the close, sellers returned in Asia trade, keeping signals bearish for Friday.
• Profit taking after Biden stimulus announcement
• Bids reported ahead of 1.2100, offers ahead of 1.2200.
AUDUSD
• Prices have switched direction in each of the past 4 sessions, indicating weak trend signals. So, despite the bullish close on Thursday, with sellers returning to the market during Asia trade, the outlook is bearish for Friday.
• Aud caught in profit taking on Biden plan.
• Offers reported ahead of .7800, support at .7660, stops below.
GBPUSD
• Prices closed little change for the 2nd day in a row on Thursday, with sellers defending the 1.3700 level. As such, we suggest selling into rallies towards 1.3700 today.
• EurGbp flows helping the Pound
• PM Johnson leadership at risk unless plans to lift lockdown are drafted.
FX Relative ATR Grid
Comment: Volatility continues to decline across the board, which suggests markets are awaiting news/drivers. GBP is poised for a volatility expansion after such tight ranges in the past 2 days.
FX Relative Strength Grid
Comment: the main signals going into Friday are EUR weakness and GBP strength.