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Intermarket:
- (+0.81%)
Tech stocks tumbled overnight, dragging the Nasdaq into a technical correction. The rotation into value stocks lifted the Dow Jones, and the VIX rose to 25.47. US Yields continue to rise with the 10-year holding above 1.60% despite TSC Yellen’s opinion that “if Biden’s fiscal package turns out to be inflationary, there are tools to deal with that”. Gold closed below $1700 yesterday on further USD strength.
Big story remains yield-driven rotations out of crowded growth and momentum and into value, cyclical, and reopening plays. Still a lot of talk about favourable conditions from central bank liquidity, massive fiscal stimulus, vaccine progress, reopening momentum, upside risk to earnings.
Elsewhere, BOE’s Bailey reiterated that risks remain tilted to the downside and the bank does not intend to tighten monetary policy until there is proof of sustainability of recovery.
Meanwhile, the ECB showed no intent to halt the rise in yields. Bond purchases remained tepid yesterday at EUR11.9bn (similar to the EUR12bn the previous week) ahead of its policy decision on Thursday.
Looking ahead: the House of Representatives’ is likely to cast their final vote on the Biden administration’s fiscal package that passed the Senate over the weekend. However, the vote could also slip to tomorrow.
Matters that Matter:
• U.S. Commerce Secretary Raimondo supports a stronger USD
• China state funds buy stocks to stem worsening rout – BBG
• Big Rebalancing coming as Momentum funds may reduce holdings in stay-at-home towards value stocks - BBG
• Australia NAB Business Conditions 15 vs. 7 prev; Business Confidence, 16 vs. 10 prev.
• Australia starts to wean economy off COVID wage subsidy scheme
• China For Min: Need for electoral reforms given the obvious loopholes and deficiencies in Hong Kong electoral system;
• Chinese Premier Li Keqiang to hold press conference on Thurs afternoon
Majors 1-Day View:
USDJPY
- Prices posted the 9th higher daily high & low in a row, with gains of ½ Big Fig on Monday. Signals remain strongly overbought and the first (weak) signs of divergence in momentum are appearing. Caution is advised as we approach the key resistance at 110.00, and buying into dips at 108.80 or 108.20 is a better play.
- JPY pairs bid, stops tripped through 109.00
- Offers & large barrier options reported at 110.00
- Risk-on prevailing mood.
EURUSD
• Prices posted the 3rd lower daily high & low in a row on Monday, with losses of 1 Big Fig. With prices testing supports at 1.1830s, selling into rallies remains the favoured strategy today towards 1.1880s.
• Even as IMM Net-Spec positioning remains long, Eur under pressure as yields drive inflows into USD.
• Support at 1.1830s holding for now, but bias is down.
• Resistance at 1.1950.
AUDUSD
• Prices posted the 3rd lower daily high on Monday, and selling continued during Asia trade with last week’s low being negotiated. As such, the bias remains bearish for Tuesday.
• Under pressure on yields, USD strength.
• Resistance at .7800, support at .7600.
GBPUSD
• Prices posted an inside day on Monday, with a little changed close. With prices still honouring the lower daily high trend, the bias remains bearish and the preference is to sell any rally towards 1.3860, or sell through 1.3800.
• Monday posted an “inside day” with a very tight range. Potential expansion today?
• Break of 1.3800/3860 range key for momentum.
FX Relative ATR Grid
Comment: Volatility decreased slightly on Monday, but FX is still showing good volatility levels into Tuesday, especially on USD, GBP, CHF.
Relative Strength Grid
Comment: The strongest trends are in USD (bullish), CAD (bullish), CHF (bearish), JPY (bearish). The strongest momentum was seen yesterday in CHF (bearish), NZD (bearish) and EUR (bearish).