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Intermarket:
- SP Futures 3652 (-0.21%)
- EUSTXX 3514 (-0.40%)
- Crude Oil 44.20 (-0.79%)
- US 10YR 0.92 (-2.09%)
- EurUsd 1.2076 (+0.07%)
- UsdJpy 104.43 (+0.14%)
- DAX 13339 (-0.40%)
Risk appetite remains buoyant although equities gave up some gains into the close. USD weakness remains a much clearer signal, as fiscal talks are back in focus. Yesterday a group of bipartisan US politicians put forward a $908 billion relief package. McConnell and Pelosi seem to be working towards a common goal (finally), while Fed’s Powell and TSC Mnuchin also agreed upon the need for further stimulus. Also, US yields rose strongly, and inflation expectations were also boosted, as vaccine progress has traders discounting stronger economic conditions in the medium-term.
As such, the USD fell to its lowest level since April 2018 while the Euro passed 1.2070 – and now the risk is that ECB members start to “talk down” the currency.
The big risk event for today is the emergency EU meeting set for this morning at 7.30 GMT by Barnier. Sterling moved higher yesterday as it was announced that UK-EU trade delegations entered into a ‘tunnel’ – the discussions entered a more serious phase. The language used suggests that a deal could be in the offing.
Matters that Matter:
• Senate leader McConnell urges new COVID-19 aid in broad funding bill
• Trump campaign challenges election results in Wisconsin Supreme Court
• Chicago Fed Evans – Economy ‘screams out’ for more fiscal help, Fed already doing a lot – CNN Int’l
• U.S. inflation expectations hit 18-month high on vaccine hopes - FT
• RBA Governor Lowe: Australia’s economy has turned the corner; recovery will be uneven, bumpy and drawn out; expects GDP growth to be solidly positive in Q4/Q4 2020; unemployment bigger risk than excessive borrowing; we are still on the view that a negative policy interest rate is extraordinary unlikely;
• RBA Governor Lowe: RBA has open mind on need to buy debt beyond AUD100bn; RBA to own 20% of government debt by end of bond-buying program
• AU Q3 Real GDP QQ SA, 3.3%, 2.6% f’cast
• Brexit deal naysayers on back foot, 35% see no deal in December vs 40% in November – Reuters poll
Majors 1-Day View:
USDJPY
- A failed rally and little changed close on Tuesday have weakened bullish signals. We prefer to buy a break of 104.60 or sell through 104.00
- USDJPY caught between USD weakness and risk-on flows.
- Opex still a factor with expiried form 104.50 weighing.
EURUSD
• Despite a failed rally on Monday, buyers returned to the market on Tuesday posting a bullish engulfing with gains of over 1 ½ Big Fig. Prices are now extended at the intraday, Daily and also weekly levels, so pullbacks are to be expected and we prefer to buy dips towards 1.2000.
• Prices supported on USD weakness.
• Bids reported around 1.2000.
AUDUSD
• Despite a bearish engulfing on Monday, prices posted modest gains on Tuesday and buying continued into Asia trade. As such, despite intraday signals being weak, the bias has turned back to modestly positive for Wednesday.
• Prices supported by better GDP numbers.
• AUD generally underperforming compared to peers on AU/China trade tensions
GBPUSD
• Prices posted the 2nd higher daily low on Tuesday and reached past the November highs to 1.3440s. As such, signals remain bullish for Wednesday but with caution, as pullbacks are expected.
• Brexit negotiations reach “the tunnel”. Barnier to update bloc on trade talks at 7.30 GMT today.
• Traders await Brexit breakthrough
FX Relative ATR Grid
Comment: Ranges remain healthy into Wednesday, although after such a volatility expansion on the Euro and USD, today should be a calmer day.
FX Relative Strength Grid
Comment: The strongest signals going into Wednesday are Eur and CHF strength vs. USD and JPY weakness.