Source: IFXA Ltd/RP
FX Recap and Outlook: Fed Chair Jerome Powell and his colleagues do not see the US economy the same way as the bond market. The officials stress that the Fed needs to be patient and that economic growth is far from their goals, but there are many uncertainties to their outlook. The Fed’s story is that the rise in yields is just an acknowledgement of the improving economic landscape. Bond traders think the Fed has missed the bus. They fear rapidly rising inflation due to fiscal and monetary stimulus as vaccines fuel pent-up consumer spending. Markets are waiting to see if Mr Powell will stuff the inflation genie back in the bottle or concede defeat to the bond traders.
Global equities are deep in the red. Japan’s Nikkei 225 closed with a loss of 2.13%, while China’s Shanghai Shenzhen CSI 300 index plunged 3.15%. The UK’s FTSE 100 leads European bourses lower, and Wall Street futures point to a negative open. 10-year Treasury yields are 1.467%, while gold and oil prices are modestly lower.
The US Senate is expected to vote on Biden’s $1.9 trillion stimulus package on the weekend.
US weekly jobless claims rose 9,000 to 745,000, a tad below the 750,000 forecast. The previous week’s data was revised higher, from 730,000 to 736,000. Markets ignored the news.
EURUSD opened in the middle of its overnight 1.2029-1.2066 range. ECB Board Member and Dutch Central Bank Governor Klaas Knot took a page from the Fed’s playbook and said higher yields reflected an improved growth outlook. Eurozone January Retail Sales (-5.9% m/m) were weaker than expected, while the unemployment rate was unchanged at 8.1%. The intraday technicals are bearish below 1.2080.
GBPUSD traded in a 1.3918-1.3967 range, consolidating recent losses, with traders contain to await Powell’s speech. The currency barely reacted to yesterday’s UK budget, mostly because markets were aware of the key initiatives. The EU and UK are at odds over Britain’s decision to unilaterally extend the grace period around Northern Ireland Trade. The EU says the move to exempt goods entering Northern Ireland is a violation of the withdrawal treaty. FX markets didn’t react to that news or news of better-than-expected Construction PMI (53.3).
USDJPY extended yesterdays gains and climbed to 107.46 in NY trading underpinned by 10-year Treasury yields climbing to 148.25. The short term technicals are bullish targeting a move to 108.20.
AUDUSD traded choppily in a 0.7754-0.7815 range with frim commodity prices including iron-ore offsetting, modestly weaker January Retail Sales (actual 0.5% m/m vs forecast 0.5%). Even so, US dollar demand due to US inflation fears is weighing on prices.
NZDUSD tracked AUDUSD move. RBNZ Governor Adrian Orr reiterated the need for accommodative monetary policy
Oil traders are awaiting announcements from the Opec and Russia meeting today. There are rumours that supply increases will be scaled with Saudi Arabia increasing production by 500,000 barrels/day.
USDCAD is steady in a 1.2634-1.2673 band. The commodity bloc trio (CAD, AUD, NZD) are supported by talk of a “commodity super-cycle” underpinning prices due to expectations that a global economic rebound will unleash pent-up demand for commodities. USDCAD is further undermined by expectations that a strong US economy and improved vaccine distribution will help turbo-boost domestic growth
USDCAD Technicals: The USDCAD technicals are bearish below 1.2730 looking for a break below 1.2620 to extend losses to 1.2550. and then 1.2490. A break above 1.2730 targets 1.2870. For today, USDCAD support is at 1.2620nd 1.2580. Resistance is at 1.2680 and 1.2730. Todays Range 1.2580-1.2660
Chart: USDCAD 4 hour
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank