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Intermarket:
- SP Futures 3836 (+0.47%)
- EUSTXX 3599 (+0.50%)
- Crude Oil 54.95 (+0.37%)
- US 10YR 1.11 (+2.60%)
- EurUsd 1.2043 (+0.12%)
- UsdJpy 105.02 (+0.05%)
- DAX 13874 (+0.35%)
Risk appetite returned even as the Reddit buying momentum takes a pause. The S&P 500 index rallied 1.4% even though the likes of GameStop and AMC collapsed by 60% and 41% respectively. Stimulus talk and expansive monetary policy continue to hold up asset prices, and the US 10YR yield has started climbing again.
NZD is stronger after surprising Q4 employment data. Unemployment rate improved to 4.9% from 5.3%. Big move in the AUDNZD from 1.0614 down to 1.0547. BNZ announced that it raised 2020/2021 milk price forecast to NZD 7.40/kg, citing demand from China and drier conditions in NZ which makes a strong finish to seasonal production unlikely. To note, life is also pretty much back to normal in NZ with the exception of strict travel rules. So if you’re wondering what life will be like after Covid, take a peek into NZ.
AUD was pressured by AUDNZD and a dovish RBA. RBA’s Lowe said that the QE program will remain in place for longer because the actions of other central banks would cause an unwelcome rise in the Australian dollar.
Looking Ahead: we get speeches from BOC’s Schembri, Fed’s Kaplan, Mester and Kashkari. Key corporate earnings to watch out for today include Spotify, QualComm and PayPal. US ISM Services will be the key data point to watch, with declines expected.
Matters that Matter:
• Treasury’s Yellen calls top regulator meeting on GameStop volatility, consults ethics lawyer
• Yellen, IMF chief discuss need for multilateral solutions on debt, other issues
• Low U.S. short-term rates likely a fixture in 2021 amid excess cash
• Reddit-fuelled trading frenzy driven partly by Fed, Kaplan says
• China’s services sector grows at slowest pace in nine months; Jan Caixin Services PMI, 52.0, 56.3 prev
• BOJ won’t dial back stimulus, seeks more nimble policy
• BOJ’s Iwata calls for fiscal firepower to beat deflation
• Australia cash rate seen near zero for several years – RBA Gov Lowe
• NZ jobs surprise rules out rate cuts, tightening sooner; Q4 Unemployment 4.9%, 5.6% f’cast, 5.3% prev
• Draghi to help form Italian Government.
Majors 1-Day View:
USDJPY
- Prices posted the 5th higher daily high & low in a row on Tuesday. However, with sellers returning at the highs, prices closing little changed, there was a loss of topside momentum. As such, the call for today is neutral in between 104.82 and 105.18
- Tops tripped above 105.00, bids rise to 104.80.
- Steady yields supportive.
EURUSD
• Prices posted a 2nd lower daily high & low in a row on Tuesday, but buyers returned ahead of 1.2000, prices closing little changed. This loss of downside momentum suggests caution, but the bias does remain negative into Wednesday.
• Mario Draghi asked to help form government in Italy, supportive for EUR
• Barrier option defence at 1.2000 also reported
AUDUSD
• Prices posted the 2nd lower daily high & low in a row on Tuesday, but initial losses were recovered and prices posted a little changed close. As such, bearish momentum has stalled and we prefer to sell rallies towards .7660s today.
• Dovish RBA & Lowe keeps lid on prices.
• Break of .7565 may see further stop loss selling. While break of .7720 would attract more buyers.
GBPUSD
• Prices have been contained within the 1.3630/1.3760 zone for the past 9 sessions. As such, directional signals are not strong. Prices tested the lower end of the range on Tuesday, but buyers returned to post a little changed close. As such, we prefer to remain neutral and play a break of 1.3609.
• Post-Brexit state aid scheme may upset EU
• Vaccine rollout proceeds at fast pace vs slow pace in EU, supporting the Pound.
FX Relative ATR Grid
Comment: Volatility is normalising, with more favourable trading conditions returning to FX after weeks of slow markets. AUD, CHF, NZD are all quality movers into Wednesday.
FX Relative Strength Grid
Comment: going into Wednesday, NZD and CAD strength are evident vs. AUD, EUR, JPY weakness.