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Intermarket:
- SP Futures 3955 (+0.61%)
- EUSTXX 3733 (+0.03%)
- Crude Oil 60.13 (+1.09%)
- US 10YR 1.23 (+2.77%)
- EurUsd 1.2138 (+0.08%)
- UsdJpy 105.53 (+0.16%)
- DAX 14117 (+0.01%)
The reflation theme appears well and truly alive, propelled forward by gains in the commodity complex. The deep freeze in Texas took centre stage yesterday, particularly with many Asian markets still closed and the US market out for Presidents’ Day. The ongoing freeze in Houston has resulted in the complete shutdown of some oil refineries in the Gulf region, in addition to curtailing electricity output to households and businesses. WTI closed above $60 for the first time in more than a year as a result of the weather crisis.
Energy, Materials and Financial stocks are leading the way in Europe and global stocks posted a 13 day winning streak - the longest streak since 2003. Encouraging vaccine news, accommodative policies and earnings surprises have all contributed to the rise.
Looking ahead: Germany’s ZEW survey expectations as well as Eurozone’s 4Q preliminary GDP and employment figures will be scrutinised. Watch out tonight for RBA Kent’s speech: there is no guidance on the precise subject matter, but markets will be alert to any comments on the undesirable deflationary impact of recent AUD gains.
Matters that Matter:
• BoJ Kuroda: Virus having major impact on domestic and overseas economies; important to increase productivity and innovation; need to pay attention to faster digitalization; ETF buying is part of monetary easing; remains cautious on outlook for economy; can’t ignore downside risks for economy at home and abroad; too early to mull exit of ETF purchases; won’t know if stock moves are excess until later
• Japan FinMin Aso – Major economies agree now not time to withdraw fiscal support
• RBA: There were few signs deterioration in lending standards; AUD noticeable lower due to Nov policy measures; monetary support needed as jobless, CPI goals some years away; would be premature to consider withdrawing monetary stimulus; acknowledges risks from low rates, particularly housing
• Victoria premier says easing of restrictions becoming possible
• Euro zone eyes March-May decisions on post-COVID econ support tapering
• Britain may need big tax rises, but not yet - think tank
• Oil prices climb as deep freeze shuts U.S. oil wells, curbs refineries
Majors 1-Day View:
USDJPY
- Prices on Monday posted the 3rd higher daily low in a row with gains of over ½ Big Fig. As such, signals are still pointing upwards for Tuesday but with caution, until we break through 105.70.
- JPY crosses bid up on risk-on, carry-demand and short covering.
- Higher yields also supportive, as is BOJ ETF buying.
EURUSD
• Prices posted the 4th little changed close in a row on Monday, highlighting investor indecision. As such, the call is a cautious one and we suggest remaining square and buying the dip towards 1.2100 or buying up through 1.2150.
• Prices higher on risk-on mood
• USD weakness supportive
AUDUSD
• Prices posted further gains on Monday via the 2nd higher daily low in a row. Prices are now reaching overbought extremes in proximity to this year’s highs, so caution is advised. We prefer to buy dips towards .7760s today.
• Nothing new from RBA minutes.
• Commodities and metals, risk appetite and USD weakness all supporting rise in AUD.
GBPUSD
• Prices are overbought at the daily and weekly levels, but buyers maintain the upper hand and prices have reached fresh cycle highs in Asia trade at 1.3953. We prefer to buy on a dip towards 1.3900 today, as offers are reported close to 1.4000.
• Pound reaches new trend highs.
• Significant option defence reported ahead of 1.4000 Barriers.
FX Relative ATR Grid
Comment: Volatility returned on Monday in light trading conditions, with JPY pairs expanding and pulling up volatility levels elsewhere as well. The market isn’t firing on all cylinders yet, but it appears volatility is once again expanding, which makes trading conditions more favourable.
Relative Strength Grid
Comment: The strongest trends remain visible in GBP (long), JPY crosses (long), AUD pairs (long), CHF pairs (long). The largest flows yesterday were seen in JPY (weakness), USD (weakness) and CHF (Strength).