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*As a reminder, the US is away today for Martin Luther Kind day.
Intermarket:
- SP Futures 3753 (-1.68%)
- EUSTXX 3576 (-1.27%)
- Crude Oil 52.18 (-0.14%)
- US 10YR 1.10 (-0.72%)
- EurUsd 1.2083 (-1.11%)
- UsdJpy 103.73 (-0.22%)
- DAX 13735 (-1.96%)
Markets are starting the week on a softer note as the “reflation trade” pulls back. There is growing opposition for Joe Biden’s fiscal stimulus plan (with Republicans Toomey and Scott joining the group); Covid-19 continued to spread and lockdowns get tougher (now even Chinese authorities have locked down more than 20 million people in response to fresh outbreaks in a number of provinces near Beijing); the US National Guard has been deployed in 50 states ahead of Biden’s inauguration; vaccine rollouts for the time being are slow and there are concerns regarding deliveries and reserves.
The markets’ optimistic view is being dampened, with USD and JPY gaining into the week, while equity markets are in the red. In the absence of US markets for Martin Luther King Day, volumes are likely to be on the low side with trading activity likely to diminish as the day progresses.
Check out our weekly call for the full list of themes and market moving events for the week.
Matters that Matter:
• Biden’s stimulus plan faced growing backlash from Republicans Toomey and Scott.
• CN Q4 GDP YY 6.5%, f’cast 6.1%, prev 4.9%; QQ SA 2.6%, f’cast 3.2%, 2.7% prev
• China reports 109 new COVID-19 cases as infections persist in northeast
• Treasury nominee Janet Yellen to say U.S. does not seek weaker dollar -WSJ
• Fed Rosengren says need to keep buying MBS, Treasuries
• Biden may cancel Keystone XL pipeline permit as soon as his first day in office (but given Biden’s opposition in May 2020, this shouldn’t be a surprise)
• Pro-Trump protests quiet amid massive police presence across U.S.
• Australia unlikely to fully reopen borders in 2021 as virus cases slide
• UK hopes to ease lockdown from March -minister
Majors Weekly View:
USDJPY
- Prices posted a higher weekly high & low last week, but sellers returned to the market from close to the Dec 10 highs. As such, signals are rather mixed and the call for this week is to play a break of 103.50 or 104.40.
- Both USD and JPY bid on risk-off
- Covid spread, US violence catalysts
EURUSD
• A 1 ½ Big Fig decline interrupted the sequence of higher weekly lows last week, switching signals to bearish for this week.
• EUR soggy on Covid-19 spread, Italy and Holland government failures
• Market still short USD in holiday-thinned trade.
AUDUSD
• Prices posted an “inside week” into Friday’s close, highlighting indecision, alongside a contraction in volatility. As such, the call for this week is to play the break of last week’s low at .7680.
• Aud soggy on pullback in the reflation trade & risk-off.
• Key support at .7660.
GBPUSD
• Prices interrupted the trend of higher weekly lows into Friday’s close. Although the neutral weekly close isn’t a strong signal, we prefer to sell into rallies this week.
• UK Fin Min wants corporate tax hike
• Lockdowns to lift after March
FX Relative ATR Grid
Comment: Volatility declined last week, with outright contractions seen on multiple pairs. Only the Euro and Cad maintained decent volatility levels, so that’s where continuation is most probable this week.