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Intermarket:
- SP Futures 3794 (+0.10%)
- EUSTXX 3587 (+0.06%)
- Crude Oil 53.35 (+1.91%)
- US 10YR 1.09 (+0.16%)
- EurUsd 1.2144 (+0.12%)
- UsdJpy 103.75 (-0.15%)
- DAX 13806 (-0.03%)
Welcome to inauguration day: Joe Biden will become the 46th President of the United States, with Yellen joining him as Treasury Secretary. The market is ready for more fiscal stimulus, while simultaneously challenging China’s “abusive, unfair and illegal practices”. There is a divergence in equity markets: EU markets were are weaker today on rising infections and death rates, with Germany extending lockdowns; US indices instead were quite strong on Tuesday.
Ahead of the ceremony we get the Bank of Canada rates decision. Some analysts expect a micro-cut due to the deterioration in CAD economic indicators since the last meeting. However, with vaccines being deployed, Crude Oil rallying and fiscal support, the BOC is more likely to remain still, upgrade it’s projections and not discuss the need for further easing. The markets will likely reward CAD if Macklem pursues the upbeat tone.
Meanwhile, Italy’s government survived the vote of confidence and together with a better ZEW, may keep the Euro favoured into Friday’s PMIs.
Looking ahead: the main focus today will be Joe Biden’s inauguration. Ahead of that , we get the Bank of Canada decision and BOE’s Bailey speaking.
Matters that Matter:
• ‘Act big’ now to save economy, worry about debt later, Yellen says in Treasury testimony
• In farewell address, Trump wishes luck to next administration without mentioning Biden
• China’s short-term money rates surge despite huge PBOC cash injection
• China’s capital steps up COVID-19 measures as outbreak persists
• BoE Haldane - UK economy recovering ‘at a rate of knots’, will reverse policy when time comes
• Italy’s Conte survives close Senate vote, vows to forge ahead
Majors 1-Day View:
USDJPY
- Prices have traded sideways for the past 6 sessions, signalling a lack of trend strength. As such, we suggest remaining neutral between 104.10 and 103.50 today.
- USDJPY lower into Wednesday on weaker USD
- Support and bids reported at 103.50-60, stops below.
EURUSD
• Prices traded higher on Tuesday, with prices interrupting the sequence of lower daily highs and gaining over ¾ Big Fig. The recovery is potentially corrective, but could extend. As such, signals remain cautiously bullish for Wednesday.
• EUR stronger on lower USD
• Risk rally continued into Asia trade, resistance now 1.2200.
AUDUSD
• Prices interrupted the sequence of lower daily highs on Tuesday, but sellers returned to the market and the day closed little changed. Signals are hence not strong, but buying in Asia trade has the potential to extend and as such, we are cautiously bullish today.
• Aud stronger on risk-on and weaker USD.
• Key support at .7660.
GBPUSD
• Prices gained ½ Big Fig on Tuesday, interrupting the sequence of lower daily highs. While this is positive, the rally may be corrective. As such, signals are only cautiously bullish today.
• USD continues to ease and risk appetite sturdy on US stimulus plans
• Financial sector to cut staff, review office space post Brexit
FX Relative ATR Grid
Comment: Volatility remains subdued, as it has been all week. The market is “waiting” for a driver. The feeling is that the current trends have weakened and the market is preparing for a shift. Caution is advised.
FX Relative Strength Grid
Comment: Signals are not strong going into Wednesday. USD appears rather weak but that’s the only clear signal.