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Intermarket:
- SP Futures 3920 (-0.19%)
- EUSTXX 3698 (+0.03%)
- Crude Oil 61.65 (+0.82%)
- US 10YR 1.30 (+0.15%)
- EurUsd 1.2043 (+0.07%)
- UsdJpy 105.91 (+0.04%)
- DAX 13904 (-0.02%)
US tech stocks led the equity retreat yesterday, as initial jobless claims unexpectedly rose to 861k and sent jitters of a weak labour market. The S&P 500 fell 0.44% (including decliners like Walmart on news that earnings will decline slightly this year). The 10-year UST bond yield ended at 1.29%. Meanwhile, Treasury Secretary Yellen warned that “the price of doing too little is much larger than the price of doing something big” when it comes to the fiscal stimulus package. Instead, ECB’s Schnabel warned that that rising global real yields may hit the stock market, according to the January ECB minutes.
There may be scope for further volatility in FX today on Flash PMIs. Consensus is bearish on UK retail sales and PMI, just as prices approach the 1.4000 option barrier. Consensus for EU PMIs is also bearish. So any upwards surprises should shake the market.
The Loonie weakened overnight alongside the slide in oil prices as a restart of power supplies to some parts of Texas will enable some oil production to recommence, and the Biden administration looking to restart talks with Iran has taken some heat out of Middle East concerns.
Looking ahead: today we get Flash PMIs from Europe, UK and US; UK’s retail sales; Fed’s Barkin and Rosengren are also speaking. Finally, President Biden will attend his first G7 meeting.
Matters that Matter:
• Biden to debut at G7 with vaccines, economy and China in focus
• Yellen says U.S. will keep tariffs on China in place for now, tax hike would pay for part of Biden bill
• Australia retail sales up 0.6%, 2% f’cast, -4.1% prev, COVID restrictions a drag
• ECB/BdF Villeroy – France should end financial support to economy gradually – Les Echos
• Locked-down German economy likely subdued in coming weeks – FinMin
• Cryptocurrency Ethereum hits record high, lifted by bitcoin, institutional demand
• Gold slips to over 7-month low as rising yields dent appeal
Majors 1-Day View:
USDJPY
- Prices posted a lower high & low yesterday, interrupting the trend of higher daily lows. On balance this is negative, but movement remains limited. So the call is just cautiously bearish for Friday.
- Offers ahead of 106.00, bids seen at 105.65 for vaccine remittances.
- US Yields firm, but off from highs.
- Risk off predominant today.
EURUSD
• Prices recovered ground yesterday, and signals are improving. However, until Tuesday’s high is hurdled, caution is advised. We prefer buying dips today.
• Offers capped at 1.2100, equity weakness weighed too.
• Support at 1.2030s and 1.2000.
AUDUSD
• Movement has been limited in the past 2 sessions. Buyers have returned near .7730 and sellers remain active ahead of .7800. As such, for Friday we prefer to sell on rallies towards .7800 or buy towards .7730.
• Risk appetite key for AUD, softer today.
• Offers reported at .7800.
GBPUSD
• Prices posted a bullish engulfing on Thursday, taking prices to fresh cycle highs. However, with prices extended on the week, we prefer a more cautious approach and suggest buying on dips.
• Pound remains elevated on quick vaccine rollout.
• Significant option defence reported ahead of 1.4000 Barriers.
FX Relative ATR Grid
Comment: Volatility remains elevated in FX, with trading conditions remaining favourable into Friday.
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 GBP (strength), JPY (Weakness), USD (Weakness).