Markets are in an ebullient mood as President Biden set to work on reversing America’s isolationist stance in the world which can only be good for international relations – trade, co-operation, and commerce.
The smooth transition of power has soothed any nerves and brought the need for a speedy vaccine rollout into sharp focus.
Of course, what we are missing is a presidential tweet proclaiming that stocks have hit all-time record HIGHS! With the old president now ensconced on his golf course, perhaps the main message here is that the incumbent in the Oval Office doesn’t make that much difference to markets. Since the 1930s, all presidents except Nixon and George W. Bush have averaged double-digit returns with only three rulings over average declines. Far more important is whether the Fed keeps the punchbowl full and vaccine roll out picks up speed.
Bond yields look to be stuck in a 1.07%-1.13% range at the moment but the dollar bears are out again and trying to push the DXY below 90. With initial jobless numbers still highly elevated, the US economy looks like it needs all the help it can get. Although the 900k claims were better than expected and last week’s 926k, it should be noted that this data is hard to adjust for seasonal fluctuations at the start of the year. That said, the figures covered the week during the survey for nonfarm payrolls so this raises the risk of a second straight month of job losses.
ECB plays to the script
With the trade-weighted Euro below its six-month average and the ECB already knees-deep in new measures announced at its last meeting in December, President Lagarde left all policies unchanged. The pandemic is expected to weigh on the economy in the first quarter so ample financing remains essential, while the bank is monitoring FX rates very carefully.
The EUR has barely moved after an initial jump higher with two of the commodity EUR crosses intriguingly poised.
EUR/AUD is sat on levels not seen since 2018 and the neat bearish channel from the October highs look to be in play for more new cycle lows. Support lies at 1.5593 but if sellers get the upper hand, then 1.5580 looks to be a near-term target. Interestingly Australia’s unemployment rate fell overnight to 6.6% and we may have now seen the peak in the labour market as it heals from the pandemic damage.
Since 2018 and the neat bearish channel from the October highs look to be in play for more new cycle lows. Support lies at 1.5593 but if sellers get the upper hand, then 1.5580 looks to be a near-term target. Interestingly Australia’s unemployment rate fell overnight to 6.6% and we may have now seen the peak in the labour market as it heals from the pandemic damage.
EUR/CAD is also sat precariously just above key support at 1.5313. The Bank of Canada’s optimistic tone yesterday has prompted markets to consider tapering risks, but the Governor did maintain that this would only occur when inflation moved sustainably towards 2% - which is a long way off! With crude prices tracking sideways, we may need to have a little patience to see if this pair goes decisively lower. Trend indicators show a pick-up in bearish trend momentum so a retest of that important support (1.5313) is likely. A weekly close below here could see prices drop towards 1.5125.
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