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Intermarket:
- SP Futures 3835 (-0.29%)
- EUSTXX 3603 (-0.39%)
- Crude Oil 52.40 (-1.36%)
- US 10YR 1.11 (+0.06%)
- EurUsd 1.2172 (+0.08%)
- UsdJpy 103.58 (+0.10%)
- DAX 13886 (+0.24%)
Risk assets are softer into Friday while yields and USD are gaining. Rising global Covid cases may cast a shadow over recent market euphoria and major central banks are now sounding more upbeat about the outlook (hence, we should prepare for less stimulus going forward). Inflation expectations rose, and yield curves steepened.
US President Biden signed more executive orders to combat the Covid crisis and stabilizing the supply chain for critical medical supplies. Many analysts suggest the focal points in the short-term are the US vaccine rollout and employment conditions.
Separately, Treasury Secretary-designate Yellen promised to work with members of Congress to fast-track tax increases on corporations and wealthy Americans, put “effective pressure on countries that are intervening in the foreign exchange market to gain a trade advantage”. In the medium-term, this is another negative for equities.
The focal point for Friday markets will be the EU PMIs. The markets expect lower prints on the harsher lockdowns and virus spread, but GER ZEW earlier this week overlooked such concerns.
Matters that Matter:
• Fauci credits Biden for letting ‘the science speak’ as new administration puts focus on virus
• Japan’s factory activity contracts as state of emergency weighs, mfg PMI – flash 49.7, prev 50.0
• China overtakes Germany with largest current account surplus-Ifo
• UK consumer confidence jumps by most in 8 years on vaccine news - GfK, Jan -28, -29 f’cast, -26 prev
• EU to tighten travel curbs for virus hot spots as third wave fears mount
• Australia shoppers pull back in December, outlook still strong; preliminary retail sales -4.2% m/m vs -2.4% f’cast
• NZ Q4 CPI QQ 0.5%, unch f’cast, 0.7% prev; YY 1.4%, 1.0% f’cast, 1.4% prev, signals RBNZ to leave rates steady
Majors 1-Day View:
USDJPY
- A failed decline on Thursday alongside a little changed close modestly improved signals for Friday. As such, the call is cautiously bullish.
- US Yields rise, curve steeper, USD supported
- Bids ahead of 103.00, offers reported at 103.70
EURUSD
• Prices posted the 3rd higher daily high & low in a row on Thursday with gains of ¾ Big Fig. However, USD strength Is starting to materialise into Friday and as such we suggest buying a dip to 1.2320/30.
• EUR favorite long vs. USD, bids reported at 1.2080.
• Offers reported around 1.2300
AUDUSD
• Prices posted 3rd higher daily high & low in a row on Thursday, but sellers returned during Asia trade, interrupting the sequence of higher daily lows. As such, the call for Friday is bearish.
• Aud sluggish on softer risk sentiment and stronger USD
• Offers ahead of .7800, main support .7660.
GBPUSD
• Prices posted the 3rd higher daily high & low in a row on Thursday, but sellers returned during Asia trade, with prices now below 1.3700. As such, the call is cautiously bearish for today.
• Nissan says Brexit is now opportunity
• Profit taking in play after strong gains this week.
FX Relative ATR Grid
Comment: Volatility has been unstable this week, and once again prices decelerated on Thursday. Caution and being selective is advised.
FX Relative Strength Grid
Comment: Into Thursday’s close, the markets were showing USD weakness, JPY weakness vs. NZD, GBP strength. However, the tone has changed into Friday and the main signal is USD strength.