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Intermarket:
- SP Futures 3750 (+0.05%)
- EUSTXX 3552 (+0.06%)
- Crude Oil 49.38 (+1.72%)
- US 10YR 0.94 (+2.87%)
- EurUsd 1.2251 (+0.28%)
- UsdJpy 103.02 (-0.24%)
- DAX 13723 (-0.17%)
Happy New Year and we hope you had a good holiday season. We all want to look forward to a different environment in 2021, but for now the same old challenges remain: rising Covid-19 cases leading to further restrictions (in the UK, US, France, Germany and Japan especially) which means that vaccine rollouts will be closely watched.
Equity markets remain buoyant (ex-Japan) however, on monetary and fiscal stimulus. The US passed a Covid-19 relief bill, while a Brexit deal was found. Crude and Brent also started the new year on a positive note. Indeed, the reflation trade remains one of the top consensus trades going into 2021, alongside USD weakness and ESG investing.
US politics will be the main focal point this week, with tomorrow’s runoff elections in Georgia determining which party will control the Senate. The results will affect how much of President-elect Joe Biden’s agenda will be able to pass through Congress, as well as the size of any fiscal stimulus package. We probably won’t get any results tomorrow, and will need to wait for Wednesday at least (the joint session in Congress).
For our full rundown of this week’s themes, check the Weekly Call.
Looking ahead: US non-farm payrolls on Friday will cap a busy week for U.S. data. Consensus is for +100,000 jobs, down from +245,000 in November. The unemployment rate is expected to edge up to 6.8% from 6.7% in November. Other key data this week includes ISM manufacturing and non-manufacturing PMIs and jobless claims. Although, all this takes a back-seat to the Georgia run-offs and FOMC Minutes.
Matters that Matter:
• Georgia election guardian Raffensperger faces heat as Trump contests defeat
• CN Dec Caixin Mfg PMI Final, 53.0, 54.8 f’cast, 54.9 prev
• Japan PM says government will consider state of emergency for Tokyo area
• Stricter lockdown restrictions probably on the way, says UK PM Johnson
• OPEC sees oil outlook for first half of 2021 full of downside risks
• Bitcoin trades near Sunday record of $34,800 following 800% surge
Majors Weekly View:
USDJPY
- Despite being technically oversold, USDJPY maintains a bearish bias as lower weekly highs remain intact as prices continue to push towards the March 2020 lows at 101.20.
- Risk of Tokyo lockdowns return, Nikkei pulling back.
- Dec lows at 102.87 next support, then 101.20.
EURUSD
• Prices posted a shooting star at the weekly level last week. Volumes were low and price action means less over the holidays, so the signal is lower probability, but a cautious bearish bias remains for this week.
• USD still under pressure as markets open up for business.
• Rangebound trading likely ahead of Georgia run-offs.
AUDUSD
• With prices stretched after posting fresh 2 ½ year highs at .7743, pullbacks are to be expected. However, the trend of positive weekly closes continues so signals for this week are still positive.
• Weaker Caixin PMI ignored.
GBPUSD
• Prices posted a fresh 2 ½ year high last week at 1.3687, maintaining the upwards bias after the Brexit deal in late December.
• Stricter lockdowns probable - Johnson
• With Brexit done, focus returns to Covid-19
FX Relative ATR Grid
Comment: Ranges were dull last week, given the holidays and low participation. EUR posted range expansions so it will be on the radar for sure.
Expect rangebound markets ahead of Georgia run-off on Tuesday, but also due to the shift in equity and derivatives trading from London to Europe which has many investors wondering about tech hiccups.