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Intermarket:
- SP Futures 3855 (-0.57%)
- EUSTXX 3669 (-0.30%)
- Crude Oil 61.05 (-1.01%)
- US 10YR 1.33% (-0.033%)
- EurUsd 1.2147 (-0.02%)
- UsdJpy 105.51 (+0.26%)
- DAX 13805 (-0.28%)
Risk appetite appears weaker into Wednesday’s European session, despite Powell’s dovish comments yesterday. Treasury yields are also down 1-2 bp. The US Dollar is weaker vs sterling and the yen but broadly flat vs euro. Oil is extending declines following unexpected API inventory build. Copper retreated from multi-year highs.
FED’s Powell reiterated interest rates will remain low and Fed will keep buying bonds to support the US economy. Dovish takeaways overall, with Powell dismissing concerns about inflation and financial bubbles. Powell will appear before House Financial Services Committee later today.
US-China tensions remain elevated: US may use investment ban to punish Beijing for violating global trade rules. Biden to sign executive order to bolster domestic production of chips and other strategically important products.
RBNZ left policy settings unchanged while upgrading CPI and GDP forecasts. AU wage price index rose at double the forecast pace.
Looking ahead: eyes on German Q4 final GDP report.
Matters that Matter:
• Powell: Jobs the focal point, not inflation.
• Investors jolted by sinking Bitcoin, Tesla and other market favorites
• U.S. House plans vote on COVID-19 aid bill on Friday
• RBNZ keeps rates unchanged, flags economic uncertainties; says NZD would be considerably higher if not for current policy actions
• AU Q4 Wage Price Index QQ, 0.6%, 0.3% f’cast, 0.1% prev; YY 1.4%, 1.1% f’cast, 1.4% prev
• Downgrade fears will deter countries from joining G20 debt relief framework -World Bank
• EU to keep COVID-19 curbs on non-essential travel amid chaotic border measures
Majors 1-Day View:
USDJPY
- Buyers returned on Tuesday from close to last week’s low. Despite posting a little changed close, buying continued in Asia trade interrupting the trend of lower daily highs & lows. With signals improving, the call for Wednesday is cautiously bullish.
- USDJPY well bid, talk of short covering and also importer buying
- Offers from 105.50 and 106.00 reported.
EURUSD
• Sellers returned to the market from fresh 1-month highs at 1.2180, the day closing little changed. This topside rejection suggests caution and despite the trend of higher daily lows being intact, signals for Wednesday switch to a cautious bear stance.
• Momentum weaker after printing 1-mth high.
• Support around 1.2100
• Resistance at 1.2200
AUDUSD
• Prices posted the 4th higher daily high & low in a row on Tuesday, with prices reaching fresh 3-yr highs at .7946 during today’s Asia session. However, sellers returned, prices declining back below prior day highs. With signals already stretched on multiple timeframes, this suggests caution and we prefer to sell into rallies today.
• Risk-off weighing on Aud as well as retreat in commodities.
• Key Resistance .8000, support at .7820
• AUDJPY bids reported during Asia trade.
GBPUSD
• Prices posted the 4th higher daily high & low in a row on Tuesday, with strong gains seen in today’s Asia session. The rise to fresh 3 year highs at 1.4240 has attracted sellers, with prices already off 1 Big Fig as we approach the London Open. As such, the call is to sell into rallies towards 1.4240 today.
• Pound aided by boost in GBPJPY.
• Today’s close is key: weakness could trigger a correction after explosive move.
FX Relative ATR Grid
Comment: Volatility cooled off on Tuesday, with contractions seen across various GBP and USD pairs. Into Wednesday this may suggest an expansion. Instead, continuation is expected in Jpy, Cad, Chf pairs.
Relative Strength Grid
Comment: The main trending currencies are AUD (long), CHF (short), JPY (short), GBP (long), NZD (long). The strongest momentum was seen yesterday in CHF (weakness), CAD (strength), GBP (strength), NZD (Strength).