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Intermarket:
- SP Futures 3930 (+0.19%)
- EUSTXX 3724 (+0.59%)
- Crude Oil 63.38 (+0.24%)
- US 10YR 1.39% (+1.62%)
- EurUsd 1.2175 (+0.11%)
- UsdJpy 105.95 (+0.10%)
- DAX 14057 (+0.55%)
Risk sentiment is buoyant into today’s European session, after a strong finish on Wall Street. US yields are also higher following dovish comments from Fed Chair Powell. USD remains weak, Crude oil remains bid near 14-month highs and Copper is also modestly higher again.
Yesterday’s dovish comments from Powell on the inflation outlook are the main driver of the risk-rally. Powell continued to downplay the threat of inflation, saying it could take three years to reach the Fed’s target consistently. This is supporting the reflation trade alongside fiscal stimulus, continued central bank liquidity, improving coronavirus trends, vaccine distribution and upside risk to economic and earnings growth expectations.
SCMP previewed China’s national congress (next week): authorities expected to scale back fiscal stimulus as attention shifts to managing debt risks.
Looking ahead: today we get US initial jobless claims, then cb speakers (ECB’s Lane, Fed’s Bostic, George, Bullard, Quarles and Williams).
Matters that Matter:
• New Zealand Fin Min Robertson: RBNZ will take account of housing in its policy decisions; changes will be made to RBNZ committee remit
• U.S. senators weigh paring back Biden’s $1.9 trillion COVID-19 aid plan
• UK’s Sunak plans big rise in corporate tax rates – Financial Times
• AU Q4 PRIVATE CAPITAL EXPENDITURE Q/Q: 3.0% V 1.0%E
• Fed Vice Chair Clarida: FOMC will keep accommodating until outcomes are reached; will take some time for economy to return to pre-virus levels
• FB Reportedly examining potential news agreements in Canada with local media outlets – press
• JNJ Speculation that FDA could authorize COVID vaccine as soon as this weekend - US financial press
Majors 1-Day View:
USDJPY
- Prices posted gains of 1 Big Fig on Wednesday, interrupting lower daily highs and with signals improving, the bias switches to a long stance for Thursday. However, caution is required ahead of last week’s high.
- Risk on, but crosses holding up better as USDJPY saw profit taking at 106.00
- Higher US yields supportive
EURUSD
• After an initial decline, buyers returned to the market yesterday from close to 1.2100, prices recovering the drop to close positive on the day. As such, the outlook is bullish for Thursday but with caution.
• Move higher happened on dovish Powell comments
• Resistance at 1.2200
AUDUSD
• Prices posted the 5th higher daily high & low Wednesday, with gains of ¾ Big Fig. As such, the bias remains bullish for today, but with caution as readings are overbought on multiple timeframes.
• Risk on tone and strong commodities support Aud.
• Key Resistance .8000, support at .7820
• Dovish comments from Powell kept USD down.
GBPUSD
• Gains of 1 ½ Big Figs attracted sellers yesterday, prices closing the day little changed. The resulting Shooting Star formation leaves signals weaker into Thursday, but with the trend of higher daily lows still intact, caution is advised and the call is to sell on a rally to 1.4200 or through 1.4080.
• Prices softer after Wednesday volatility.
• Trend still up, close below 1.4000 would undermine long bias.
FX Relative ATR Grid
Comment: Volatility levels are being skewed by CHF and GBP pairs, which have reached extreme levels and usually such extreme ranges are not sustainable. Continuation trades may be more challenging now, while mean reversion traders will be more active
Relative Strength Grid
Comment: The main trending currencies are AUD (long), NZD (Long), CHF (short), JPY (short). The strongest momentum was seen yesterday in NZD (strength), JPY (weakness), USD (strength), CHF (weakness).