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Intermarket:
- SP Futures 3705 (-0.34%)
- EUSTXX 3545 (+0.51%)
- Crude Oil 50.10 (+0.35%)
- US 10YR 1.005 (+5.26%)
- EurUsd 1.2308 (+0.12%)
- UsdJpy 102.74 (+0.03%)
- DAX 13673 (+0.39%)
Markets are focused on the Georgia election as turnout exceeded expectations. This was initially taken as positive for Republicans but as polls in Georgia officially closed, reports suggested Democrats were leading and risk sentiment reversed. Democrats are set to gain full power in Congress, although with a slim of margin. US yields have risen in response, with 10Y beyond 1.0% - the highest level since March. Rate curves have broadly bearish steepened and the USD has fallen modestly on the prospects of more fiscal easing from the incoming Biden administration.
Meanwhile, Saudi Arabia will unilaterally cut its crude oil production by a million barrels a day during February and March, in an OPEC+ deal that allows Russia to increase output. Crude and Brent have rallied as a result.
Finally, the NYSE is reconsidering its decision to halt the delisting of three major Chinese telecom firms after TSC Mnuchin’s opposition. President Trump signed an executive order banning transactions with 8 Chinese software applications including Ant Group’s Alipay.
Looking ahead: beyond the Georgia run-offs, the Fed minutes from the December meeting are released. The policy committee’s views on the economic outlook and possible policy measures to counter a further economic weakening will be in focus.
Matters that Matter:
• Razor-thin margins in Georgia Senate races that will decide fate of Biden’s agenda, but Democrats remain in the lead.
• Trump bars U.S. transactions with eight Chinese apps including Alipay while NYSE’s U-turn on China delistings may reverse again
• China steps up COVID restrictions near Beijing as local infections rise
• CN Dec Caixin Services PMI, 56.3, 57.8 prev
• Brent oil rises to highest since February after Saudi Arabia output cut
Majors 1-Day View:
USDJPY
- Losses of over ½ Big Fig, with prices reaching fresh cycle lows at 102.58 on Tuesday, leave signals bearish for Wednesday. However, with intraday signals much oversold, caution is advised.
- Prices slightly firmer as US 10YR exceeds 1% on Georgia run-offs.
- Bias still down, next support 101.20.
EURUSD
• After posting a fresh cycle high at 1.2310, prices retreated to close little changed on Tuesday. However, with the trend of higher daily lows intact and buyers returning to the market in Asia trade, signals remain bullish for Wednesday.
• Markets still positioned long EURUSD. Usd strength unexpected.
• Georgia run-off results are key to near-term direction. Currently Democrats are leading by a whisker.
AUDUSD
• Price posted fresh cycle highs at .7780, and while signals are overbought, until weakness materialises, the bias remains bullish.
• AUD and Risk appetite swayed by Georgia results.
• Commodities continue to support AUD.
GBPUSD
• Prices posted an “inside day” on Tuesday, with volatility contractions on many crosses. As such, signals are more mixed and the call is to play the break of Monday’s low or Monday’s high.
• UK automotive sector in trouble on Brexit.
• USD moves remain key.
FX Relative ATR Grid
Comment: Ranges have retreated somewhat since yesterday, especially on GBP (where we would now expect a volatility expansion). AUD and NZD remain the more volatile currencies into Wednesday.
FX Relative Strength Grid
Comment: the main signals going into Wednesday are USD & JPY weakness vs NZD and CAD strength.