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Intermarket:
- SP Futures 3858 (+0.34%)
- EUSTXX 3625 (+0.36%)
- Crude Oil 53.23 (-0.14%)
- US 10YR 1.09 (+0.16%)
- EurUsd 1.2135 (+0.26%)
- UsdJpy 103.38 (-0.15%)
- DAX 13953 (+0.36%)
Markets are cheering incoming US President Biden: with lower “twitter risk”, bold stimulus plans, a Treasury Secretary that is in alignment and the expectation of a return to “orthodox politics”, the reflation trade has taken off once again. Risk is being bought, USD is offered into Thursday.
The Bank of Japan kept its own monetary policy decision unchanged, ahead of today’s ECB rate decision. Lagarde expressed confidence last week that the ECB’s December forecasts were still valid, and is likely to do the same again today, despite the tightening of lockdowns across France, Germany and the Netherlands in recent days. However, it may only be a matter of time before they have to bow to the inevitable. Fiscal stimulus in Europe is limited, and slow; EUR is rising; CPI remains subdued. The risk for today is whether Lagarde will “talk down” the Euro.
CAD remains a leader in FX space after the Bank of Canada looked past the economic impact of COVID-19 restrictions saying “beyond the near term, the outlook for Canada is now stronger and more secure than in the October projection”.
Looking ahead: the main focus today will be the ECB decision and press conference, then US jobless claims.
Matters that Matter:
• Biden rolls back Trump policies on wall, climate, health, Muslims
• Biden’s push for more coronavirus aid to test his ‘honeymoon’ with U.S. Congress
• Senate panel to meet on Yellen nomination for Treasury on Friday
• BOJ lifts next year’s growth forecast, saves ammunition as virus risks linger, leaves policy as is
• ECB to chart steady course even as the outlook dulls
• Biden administration calls China sanctions on Trump officials ‘unproductive and cynical’
• China to impose virus testing on Lunar New Year travellers, cases rising
• AU Dec Unemployment 6.6%, 6.7% f’cast, 6.8% prev; Employment +50.0k, +50.0k f’cast, 90.0k prev
Majors 1-Day View:
USDJPY
- Prices declined ½ Big Fig on Wednesday, with the 1st strong directional close in 6 sessions. As such, the outlook for Thursday is bearish.
- BOJ stands pat, US Yields steady, crosses buoyant.
- Risk on due to Biden inauguration
EURUSD
• Prices posted the 2nd higher daily high & low in a row on Wednesday, but a little changed close at the daily level leaves signals less clear. Buying dips towards 1.2100 or buying up through 1.2160 is our preferred stance.
• EUR stronger on lower USD
• ECB in focus although no change is expected
AUDUSD
• Prices posted the 2nd higher daily high & low in a row on Wednesday, with gains of almost ¾ Big Fig. As such, signals for Thursday remain bullish.
• Aud stronger on risk-on and weaker USD.
• Solid employment data also aiding.
GBPUSD
• Prices posted the 2nd higher daily high & low in a row on Wednesday, with gains of over ¾ Big Fig, reaching new Jan highs at 1.3719. Sellers returned to post a little changed close but buying in Asia trade is pressuring the topside again and signals remain bullish.
• USD continues to ease and risk appetite sturdy on US stimulus plans
• EURGBP flows, USD weakness and vaccine rollout are helping the Pound.
FX Relative ATR Grid
Comment: Volatility finally accelerated on Biden’s inauguration, so these moves should have legs (After days of volatility contraction).
FX Relative Strength Grid
Comment: The strongest signals going into Thursday are CAD & NZD strength vs. EUR and USD weakness.