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Intermarket:
- SP Futures 3267 (-0.23%)
- EUSTXX 3170 (-0.91%)
- Crude Oil 39.43 (-0.32%)
- US 10YR 0.67
- EurUsd 1.1759 (-0.10%)
- UsdJpy 104.52 (-0.12%)
- DAX 12608 (-0.81%)
A combination of higher Covid-19 cases in Europe (with authorities in Spain, Germany, France and now even the UK moving towards tighter social restrictions), Beijing interfering with the Oracle/TikTok deal, and the FinCen leak all contributed to a widespread reversal in risk appetite. To note, the drop in European equities was much stronger than in US equities, leaving EU equities the better short on a relative basis.
The US Dollar was the main protagonist yesterday on the risk-off move, despite fading hopes of a US stimulus package and the war of words between Trump and Biden. Today we will likely see more of the same: weakness in equities, strength in USD, weakness in European currencies. To note, RBA’s Debelle “talked down” the Aussie overnight by saying “further rate cut is possible but there has been mixed empirical evidence on negative rates”.
Also, despite the drop, long positions on NZD remain elevated and there is a serious risk if the RBNZ disappoints tomorrow.
Looking ahead: we get the Riksbank meeting at 09:30 CET. The rate path and QE programme are likely to remain unchanged. Economic projections may be raised. At the same time, BOE’s Bailey will speak at a BBC webinar and traders will pay attention to any mention of negative rates. Finally, Fed chair Powell and Treasury Secretary Mnuchin appear before the House Financial Services Panel at 16:30 CET but the text was released yesterday and did not contain any new signals.
Matters that Matter:
• Dep Gov Debelle: Negative rates are option, doesn’t mean it is on the table; totally aligned with Governor on negative rates
• Dep Gov Debelle: RBA continues to assess other policy options; TFF increase is substantial easing of monetary policy;
• Dep Gov Debelle: FX intervention not effective in current circumstance; lower AUD would benefit economy, watching closely; mixed empirical evidence on negative rates; reducing yield target, TFF rate possible option
• Fed’s Powell says central bank committed to using all tools to help recovery
• House Democrats file bill to fund U.S. government but leave out new farm money
• Biden bashes Trump’s leadership on pandemic, Trump attacks Biden on trade
• Beijing unlikely to approve ByteDance’s TikTok deal with Oracle -Global Times
• UK PM Johnson to urge Britons to go back to working from home -The Telegraph
• Global banks seek to contain damage over $2 trillion of suspicious transfers
Majors 1-Day View:
USDJPY
- After testing 104.00, buyers returned to post a bullish spring hammer. However, bounces should be temporary and as such, the call is rather to sell into rallies towards 105.00.
- Liquidity an issue with Japan on Holiday
- 104.00 support vulnerable despite bounce.
EURUSD
• Sentiment deteriorated by 1 Big Fig yesterday, testing prior week lows. Bounces should be temporary and the outlook remains bearish.
• USD bid on risk-aversion
• 1.1690 key support.
AUDUSD
• Losses of 1 Big Fig yesterday leave signals pointing lower. However, with prices still supported above the Sep 9 low, selling into rallies is the preferred strategy.
•RBA’s Debelle delivered dovish speech, AUD off slightly
• Drop in commodities also weighing.
GBPUSD
• A decline of over 1 Big Fig yesterday leaves signals outright bearish, but with caution as prior week lows have yet to be broken. Selling into rallies is the preferred strategy.
• Lockdowns to return, PM Johnson to announce fresh measures today.
• GBP still biased lower.
FX Relative ATR Grid
Comment: Ranges expanded yesterday and trading conditions are favourable across the board. Only EURGBP saw an outright volatility contraction.
FX Relative Strength Grid
Comment: USD strength & JPY strength vs NZD weakness are the main signals into Tuesday.