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Intermarket:
- SP Futures 3783 (+0.55%)
- EUSTXX 3608 (+0.47%)
- Crude Oil 52.20 (-0.29%)
- US 10YR 1.10 (+0.95%)
- EurUsd 1.2096 (+0.17%)
- UsdJpy 104.00 (+0.31%)
- DAX 13916 (+0.63%)
Risk is on the front foot as we approach the European open, with the USD weaker and equities rebounding strongly, perhaps on the back of Janet Yellen’s prepared remarks (see below). Combined with this, the US will return today, which should improve liquidity conditions and perhaps see clearer direction emerge ahead of President-elect Biden’s inauguration.
The key event today is Janet Yellen’s testimony before the Senate Finance Committee (15.00 GMT), which is considering her nomination. In her prepared remarks viewed by WSJ and FT, Yellen said the US risks a longer, more painful recession unless Congress approves more aid and urged them to “act big” to shore up the recovery. Yellen is also expected to say US doesn’t seek a weaker dollar.
Elsewhere, Capital Economics predicted the RBA will end QE in April this year while RBNZ will be the first central bank to raise rates next year. Aussie & Kiwi moved higher on back of this AFR article. The Italian Government won a vote of confidence in Parliament yesterday, but today the vote moves to the Senate. Conte isn’t out of the woods yet.
Looking ahead: German ZEW will be the highlight this morning. Then we get Yellen’s Testimony and earnings from Bank of America, Goldman Sachs and Netflix. Also watch for the Italian vote of confidence in the Senate.
Matters that Matter:
• Yellen says U.S. must ‘act big’ on next coronavirus relief package
• Biden to block Trump’s plan to lift COVID-19 European travel restrictions
• Outlook darkens for Wall Street as Biden’s regulators take shape
• Ultra long bonds are back in force as rock-bottom rates create sweet spot
• Italian political chaos unlikely to shake investors’ faith in high-yielding bonds
• RBA may end QE in April, RBNZ could actually raise rates in 2022.
• NZ business confidence improves further in Q4; NZIER Confidence, -6, -40 prev; Capacity, 95.1%, 92.6% prev
• California proposed pausing the distribution of Moderna’s vaccine after severe allergic reactions.
Majors 1-Day View:
USDJPY
- Prices traded modestly lower on Monday but buyers have returned in Asia and signals are rapidly improving. As such, the outlook for Tuesday is bullish.
- Reflation trade back in vogue on Yellen’s comments
- JPY crosses all buoyant
EURUSD
• Prices traded slightly lower on Monday, but buyers returned into the close. Buying continued in Asia trade and signals have switched to bullish for today.
• EUR stronger on risk-on sentiment
• Resistance at 1.2173, also many topside option expiries today
AUDUSD
• Prices posted losses of ½ Big Fig on Monday, but byers returned to the market in Asia trade, interrupting the sequence of lower daily highs and switching the bias to bullish.
• Aud stronger on AFR article and Yellen comments boosting reflation theme.
• Key support at .7660.
GBPUSD
• After declining by ¾ Big Fig, prices recovered to close little changed on Monday. Buying continued during Asia trade, with signals switching to cautiously bullish for today.
• Pound bid more on USD weakness than else.
• UK firms requesting 10Bln Covid aid.
FX Relative ATR Grid
Comment: Volatility contacted across the board on Monday, due to the US holiday. We would expect a volatility expansion today, especially as the daily contraction followed the weekly slowdown.
FX Relative Strength Grid
Comment: As of yesterday’s close, markets were still in risk-off mode. During Asia however, signals changed and USD & JPY weakness has returned alongside stronger risk appetite.