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Intermarket:
- SP Futures 3733 (-0.28%)
- EUSTXX 3508 (-0.68%)
- Crude Oil 52.63 (-0.43%)
- US 10YR 1.01 (-2.50%)
- EurUsd 1.2109 (+0.01%)
- UsdJpy 104.10 (+0.01%)
- DAX 13520 (-0.84%)
Global risk appetite weakened into Thursday after weak cues from Apple, Facebook and Tesla as well as (you guessed it) liquidation of large hedge fund short positions and cashing out of profitable long positions to fund the losses. The activity provoked the largest one-day drop in three months.
This, despite Fed chair Powell’s dovish stance. He reiterated that the “whole focus on exit is premature” and that “the path of the economy will depend significantly on the course of the virus, including progress on vaccinations”.
The pickup in volatility seen yesterday suggests the move has legs. In FX, EURUSD has a key bull trendline coming in at 1.2055. A break could see IMM accounts bailout their long positions. AUDUSD got through .7660. The crucial level to watch is 0.7565, and a break could instigate IMM accounts to reduce long positions.
Looking ahead: German CPI (consensus is for the largest MoM increase in inflation as the 3% VAT cut from July is reversed), US Q4 GDP (expecting weakness), US Jobless Claims (consensus 880k).
Matters that Matter:
• Biden takes sweeping measures to curb climate change, vows job creation
• Hopeful signs on pandemic lead some U.S. states to ease coronavirus restrictions.
• China 2020 fiscal spending up 2.8% y/y, revenue falls 3.9%, CN Q4 fiscal revenue +5.5% y/y, vs 4.7% in Q3
• Chinese retail banks gain consumer lending clout as fintechs fall out of favor
• Australia Health Official: Extends travel bubble suspension with New Zealand for further 72 hours until Sunday
• Apple shares fell 2% after earnings call, Apple sees Q2 deceleration in wearables, AirPods growth
• Reuters News: White House and Treasury Department are monitoring the situation involving GameStop and other companies that have seen sharp gains on the stock market
Majors 1-Day View:
USDJPY
- Prices are finally moving with evident momentum and have broken through 104.00. As such, the outlook switches to bullish for Thursday.
- Risk off as losses in equities leave USD bid.
- Offers reported around 104.50, stops reported above.
EURUSD
• Prices declined by 1 Big Fig on Wednesday, posting the 3rd lower daily high & low in a row. As such, the call for Thursday is cautiously bearish.
• Moves in USD influential, but ECB’s Knot comments will weigh.
• Break of 1.2055 might see stop loss selling.
AUDUSD
• Prices posted a bearish engulfing on Wednesday, with prices declining over 1 Big Fig. As such, the outlook for Thursday remains bearish.
• Risk appetite weighing alongside USD strength.
• Break of .7565 may see further stop loss selling.
GBPUSD
• Sellers returned to the market from 2 ½ year highs on Wednesday, prices closing modestly lower on the day. With sellers returning during Asia trade, the call for Thursday switches to a cautious bearish stance.
• Pound remains resilient despite Covid impact.
• UK car sales down to lowest level since 1984.
FX Relative ATR Grid
Comment: Volatility has returned to the market and as such, the moves should show continuation.
FX Relative Strength Grid
Comment: The main signals going into Thursday are USD and CHF strength vs. NZD and AUD weakness.