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Intermarket:
- SP Futures 3685 (-0.05%)
- EUSTXX 3533 (+0.23%)
- Crude Oil 47.58 (-0.11%)
- US 10YR 0.92 (+0.31%)
- EurUsd 1.2162 (+0.10%)
- UsdJpy 103.49 (-0.16%)
- DAX 13399 (+0.21%)
Market sentiment received a boost, mostly on economic growth expectations as energy and materials led the way while consumer sectors lagged. Stimulus hopes and more positive comments regarding Brexit (despite PM Johnson’s attempt at watering them down) were another positive factor. Major equity indices were up by more than 1%. US dollar weakened while the Pound saw continued gains from Brexit deal optimism. Given the backdrop of softening economic data amid rising virus resurgence concerns, the pressure on the lawmakers in Washington and the UK to get their act together is mounting.
This morning we will get the PMIs out of Europe (which may come in lower due to renewed lockdowns) but the main focus today will be on FOMC. Consensus is for a turn towards outcome-based guidance, while there may also be space for a change in the weighted average maturity of asset purchases. To note, many indicators have turned lower since the last meeting, including employment conditions, ISM, retail sales, PPI.
We would expect slow markets ahead of the meeting, unless Brexit headlines cross the wires.
Matters that Matter:
• US policymakers report progress in talks for fresh COVID-19 aid
• US COVID-19 immunization rollout expands
• Despite positive vibes from Tory PMs yesterday, PM Johnson says no deal still most likely Brexit scenario.
• New Zealand economy shows faster recovery from COVID-19 effect
• BoC Gov Macklem – Recovery from pandemic at very difficult stage, activity in Q1 2021 could go negative
• French firm Valneva to start clinical trials of COVID-19 vaccine candidate in the UK
• Headlines from Saudi Crown Prince and Energy Minister of Algeria attempting to stabilize Crude prices.
Majors 1-Day View:
USDJPY
- Sellers returned to the market on Tuesday, prices declining by ½ Big Fig. As such, the outlook for Wednesday switches to bearish.
- Players making position adjustments ahead of FOMC.
- Bids around 103.00, exporters to sell rallies.
EURUSD
• Prices posted the 2nd little changed close in a row on Tuesday. As such, trend signals have weakened but prices remain anchored to recent highs and the trend of higher daily lows remains intact. As such, the call remains cautiously bullish for Wednesday.
• EUR/GBP remains the focal point as Brexit talks continue
• Large OPEX today: 1.2000 1.2 Bln, 1.2070-00 2 Bln, 1.2250 2.2 Bln.
AUDUSD
• Despite the short-term bearish shooting stars from Friday & Monday, prices recovered on Tuesday to post a positive close. As such, signals have marginally improved for Wednesday.
• Uptrend remains in place into FOMC day.
• Large Opex today at .7500 for 1.2 Bln
GBPUSD
• Prices posted a bullish outside day on Tuesday, and as such signals for Wednesday switch to bullish.
• Bookies still pricing in a deal despite Johnson’s negative tone.
• Market pricing in negative BOE rates by May.
FX Relative ATR Grid
Comment: Ranges generally increased on Tuesday, although prices may remain sluggish ahead of the FOMC meeting.
FX Relative Strength Grid
Comment: The strongest signals going into Wednesday are GBP strength vs. JPY weakness.