EUR/USD Daily Forecast – U.S. Dollar Is Losing Ground Against Euro

EUR/USD Video 21.01.21.

Euro Gains Some Ground Against U.S. Dollar

EUR/USD is currently trying to get back above the resistance at 1.2130 while the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index declined below the support at the 20 EMA at 90.35 and is slowly moving towards the 90 level. If the U.S. Dollar Index gets to the test of this level, EUR/USD will get additional support.

Yesterday, EU reported that Euro Area Inflation Rate decreased by 0.3% year-over-year in December while Core Inflation Rate grew by 0.2%. Both reports were in line with analyst expectations.

Prices remain weak in the Euro Area due to the negative impact of the strong second wave of coronavirus. It looks like Europe’s significant problems on the virus front put some pressure on the euro in recent weeks.

Today, foreign exchange market traders will focus on the European Central Bank Interest Rate Decision and the subsequent commentary. The rate is expected to stay unchanged, and traders will pay attention to ECB evaluation of the current economic situation.

Technical Analysis

eur usd january 21 2021

Yesterday, EUR/USD made an attempt to settle above the resistance at 1.2155 but failed to develop sufficient upside momentum and pulled back. However, EUR/USD received strong support near 1.2080 and is trying to settle back above the resistance at 1.2130.

If this attempt is successful, EUR/USD will get to another test of the next resistance level which is located at the 20 EMA at 1.2155. A move above this level will open the way to the test of the resistance at 1.2175. In case EUR/USD settles above 1.2175, it will head towards the next resistance at 1.2220.

On the support side, the nearest material support level for EUR/USD is located at the 50 EMA at 1.2115. If EUR/USD manages to settle below this level, it will head towards the next support at 1.2080. A successful test of this level will push EUR/USD towards the next support level which is located at 1.2060.

For a look at all of today’s economic events, check out our economic calendar.

The U.S Dollar Hits Reverse Ahead of the ECB Monetary Policy Decision and Press Conference

Earlier in the Day:

It’s was a relatively busy start to the day on the economic calendar this morning. The Aussie Dollar and the Japanese Yen were in action early this morning.

Later this morning, the Bank of Japan delivers its first monetary policy decision of the year. While the markets expect the BoJ to continue to leave policy unchanged, the latest wave of the pandemic will be a concern.

Vaccination rates will need to materially pick up globally, not just in Japan, to support a sustained economic recovery.

Away from the economic calendar, sentiment towards the U.S economic outlook provided direction early on. Hopes of significant fiscal support drove demand for riskier assets early on.

For the Japanese Yen

The trade surplus widened from ¥366.1bn to ¥751.0bn in December 2020. Economists had forecast a widening to ¥942.8bn.

According to the Ministry of Finance,

  • Exports rose by 2.0% in the month of December, while imports slid by 11.6%.
  • For the calendar year, 2020, exports slid by 11.1%, with imports tumbling by 13.8% to leave the trade surplus at ¥674.73bn.

By geography,

  • Exports to Asia fell by 5.1%, in spite a 2.7% increase of exports to China. Imports from Asia saw a more marked 7.5% decline in the calendar year 2020.
  • To the U.S, exports tumbled by 17.3%, with imports from the U.S sliding by 14.0%.
  • Exports to Europe slid by 15.1%, driven by sizeable declines to Germany (-14.9%) and the UK (-24.3%). Imports fell by 13.7 from Europe in the calendar year.

The Japanese Yen moved from ¥103.547 to ¥103.572upon release of the figures. At the time of writing, the Japanese Yen was down by 0.01% to ¥103.55 against the U.S Dollar.

For the Aussie Dollar

Employment figures were in focus this morning.

According to the ABS,

  • Employment rose by 50k in December, following a 90.0k increase in November, which was in line with forecasts.
  • Full employment increased by 37.5k, following an 84.2k jump in November.
  • As a result, the unemployment rate slipped from 6.8% to 6.7%, while the participation rate rose from 66.1% to 66.2%.
  • Employment finished the year 0.7% below the March level, having fallen 6.7% between March and May.
  • The recovery in employment was largely as a result of a more marked recovery in part-time employment, however.

The Aussie Dollar moved from $0.77551 to $0.77516 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.27% to $0.7768.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.31% to $0.7194.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. There are no material stats due out of the Eurozone to provide the EUR with direction.

While there are no stats, the ECB is scheduled to deliver its first monetary policy decision of the year.

With the markets expecting the ECB to stand pat on policy, the ECB press conference will likely be the key driver.

Last week, ECB President Lagarde stood by the ECB’s growth forecasts for this year, in spite of extended lockdown measures.

We can expect plenty of discussion on price stability and the outlook during the presentation and the Q&A.

Away from the economic calendar, COVID-19 vaccine news along with the latest COVID-19 figures will provide direction.

At the time of writing, the EUR was up by 0.16% to $1.2125.

For the Pound

It’s a relatively quiet day ahead on the economic calendar. CBI Industrial Trend Orders are due out later today.

With little else for the markets to consider, expect the stats to influence.

Ultimately, however, COVID-19 news updates will likely remain the key driver near-term.

At the time of writing, the Pound was up by 0.15% to $1.3674.

Across the Pond

It’s a busy day ahead on the economic calendar. Key stats include the weekly jobless claims figures and December’s Philly FED Manufacturing PMI.

Housing sector data for December, including building permits and housing starts are also due out. These will likely have a muted impact on risk sentiment, however.

Away from the economic calendar, President Biden’s first moves as U.S President together with COVID-19 news will also influence.

At the time of writing, the Dollar Spot Index was down by 0.15% to 90.340.

For the Loonie

It’s a quiet day on the economic data front. Economic data is limited to house price figures that will likely have a muted impact on the Loonie.

Chatter from Capitol Hill and COVID-19 news will be the key drivers on the day, with little else for the markets to consider.

At the time of writing, the Loonie was up by 0.13% to C$1.2620 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Forex Technical Analysis – Trend Changes to Down on Trade Through 1.2054

The Euro moved lower against the U.S. Dollar on Wednesday as the risk of extended lockdowns in Europe to combat the spread of COVID-19 and worries about the pace the rollout of vaccines weighed on the common currency.

European countries are struggling to contain the contagion of the coronavirus amid worries that a new variant of the virus could lead to more stringent lockdowns and more economic pain.

At 21:30 GMT, the EUR/USD is trading 1.2107, down 0.0022 or -0.18%.

The move is taking place ahead of Thursday’s European Central Bank meeting, which, after the broad easing of monetary policy last month, is unlikely to produce any major change.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.2054 will change the main trend to down. A move through 1.2349 will signal a resumption of the uptrend.

The main range is 1.1800 to 1.2349. Its 50% level at 1.2074 provided support on Tuesday and Wednesday. It is controlling the near-term direction of the EUR/USD.

The short-term range is 1.2349 to 1.2054. Its retracement zone at 1.2202 to 1.2236 is the primary upside target. Sellers could come in on a test of this level. They will be trying to form a secondary lower top.

Short-Term Outlook

The price action on Monday through Wednesday indicates the direction of the EUR/USD the rest of the week will likely be determined by trader reaction to 1.2074.

Bullish Scenario

A sustained move over 1.2074 will indicate the presence of buyers. If this move creates enough upside momentum then look for a possible surge into 1.2202 to 1.2236 over the short-run.

Bearish Scenario

A sustained move under 1.2074 will signal the presence of sellers. Taking out 1.2054 will change the main trend to down. This move could trigger a further break into 1.2025. This price is a potential trigger point for an acceleration to the downside with the next major target the November 23 main bottom at 1.1800.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Grind Sideways.

The Euro initially tried to rally during the trading session on Wednesday but then turn things around to show signs of negativity. At this point, it looks like we are probably going to go down towards the 1.20 level, although I am not necessarily looking to sell this pair. Quite frankly, this is a pullback that is desperately needed, and therefore I think that it is welcomed by both bullish and the parish traders alike.

The ECB has been active behind the scenes doing what is tantamount to yield curve control, so that may work against the Euro going forward. The Euro has been rising rather rapidly and although there has been no direct intervention in the currency markets, the reality is that the market had gotten far ahead of itself as it reached towards the 1.23 level. The weekly chart looks somewhat ominous, but really at the end of the day I think there are plenty of buyers near the 1.20 level, extending down to the 1.19 level where buyers would be looking for value based upon the idea of stimulus in the United States.

However, it should be noted that the $1.9 trillion stimulus package that Joe Biden suggested is not necessarily a “slam dunk”, and I think at this point in time it is likely that we will see a lot of noise when it comes to the idea of that stimulus shrinking the US dollar. The consensus is of course that the US dollar continues to fall in value, but we had gotten so overextended that a correction was desperately needed. We are still in the midst of that correction.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Euro Continues To Rebound

EUR/USD Video 20.01.21.

U.S. Dollar Is Under Pressure Against Euro

EUR/USD is trying to settle back above the resistance at 1.2155 while the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index declined below the support level at 90.50 and is currently testing the next support level at the 20 EMA at 90.35. In case the U.S. Dollar Index settles below this level, it will gain additional downside momentum which will be bullish for EUR/USD.

Yesterday, EU reported that Euro Area ZEW Economic Sentiment Index increased from 54.4 in December to 58.3 in January despite the negative impact of the second wave of the virus.

Today, foreign exchange market traders will have a chance to take a look at Euro Area inflation data for December. Inflation Rate is projected to decline by 0.3% year-over-year while Core Inflation Rate is expected to grow by 0.2%. Most likely, prices will remain weak in the EU in the upcoming months due to the negative impact of lockdowns in the first quarter of this year.

Technical Analysis

eur usd january 20 2021

EUR/USD managed to get above the resistance at 1.2130 and is trying to settle above the next resistance level at 1.2155. If this attempt is successful, EUR/USD will get to the test of the resistance at the 20 EMA at 1.2165. The next resistance level is located at 1.2175, so EUR/USD will likely face strong resistance in the 1.2155 – 1.2175 area.

In case EUR/USD manages to settle above this resistance area, it will gain additional upside momentum and head towards the resistance at 1.2220. A successful test of this level will push EUR/USD towards the resistance at 1.2250.

On the support side, the previous resistance level at 1.2130 will likely serve as the first support level for EUR/USD. In case EUR/USD declines below this level, it will get to the test of the next support at the 50 EMA at 1.2115. A move below the 50 EMA will push EUR/USD towards the next support level which is located at 1.2080.

For a look at all of today’s economic events, check out our economic calendar.

Inauguration Day and the Bank of Canada Put the Greenback and the Loonie in Focus

Earlier in the Day:

It’s was a relatively busy start to the day on the economic calendar this morning. The Aussie Dollar and the PBoC were in action early this morning.

For the Aussie Dollar

The Westpac Consumer Confidence Index fell by 4.5% to 107.0 in January. In December, the Index had stood at 112.0.

According to the January report,

  • Domestic border closures and COVID-19 clusters together with a sharp rise in new COVID-19 cases overseas weighed on sentiment.
  • In spite of the fall, the index is up by 14.6% from a year ago and stood 41.5% higher than the pandemic low last April.

Looking at the key components:

  • Economic conditions next 12-months slid by 8.3%, with family finances vs a year ago falling by 7.0%.
  • In spite of the decline both were up compared with a year ago.
  • Family finances next 12-months saw a more modest 0.3% decline, with economic conditions next 5-years down by 4.5%.
  • Compared with this time last year, economic conditions next 5-years was up by 31.6%, with economic conditions next 12-months up by 21.1%.
  • Time to buy a major household item was down by 2.8%, while up by 4.8% compared with this time last year.
  • Time to buy a dwelling bucked the trend, however, rising by 0.2%. This was supported by sentiment towards house prices.
  • The House Price Expectations Index increased by 1.1%.
  • Sentiment towards unemployment was disappointing, however. The Unemployment Expectations Index was up by 11.9%, while down by 11.2% compared with a year ago.

The Aussie Dollar moved from $0.77100 to $0.77102 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.21% to $0.7711.

From China

This morning, the PBoC left loan prime rates unchanged in the central bank’s first monetary policy decision of the year.

In line with market expectations, the 1-year LPR remained unchanged at 3.85%, with the 5-year unchanged at 4.65%.

The Aussie Dollar moved from $0.77026 to $0.77072 upon announcement of the decision.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.13% to ¥103.77 against the U.S Dollar, with the Kiwi Dollar up by 0.04% to $0.7125.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. German wholesale inflation figures for December and finalized December inflation figures for the Eurozone are due out later today.

Barring marked revision from prelim Eurozone inflation figures, we don’t expect the stats to have too much influence, however.

Away from the economic calendar, COVID-19 vaccine news along with the latest COVID-19 figures and Italian politics will provide direction.

At the time of writing, the EUR was up by 0.10% to $1.2141.

For the Pound

It’s a relatively busy day ahead on the economic calendar. December inflation and wholesale inflation figures are due out of the UK later today.

A pickup in inflationary pressures should deliver support for the Pound. Wholesale inflationary pressures will also need to see a pickup, however.

While the stats will influence, the market focus will remain on the UK Government’s progress towards ending the COVID-19 pandemic.

At the time of writing, the Pound was up by 0.12% to $1.3647.

Across the Pond

It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Greenback and the broader markets with direction.

The lack of stats will leave the Greenback in the hands of chatter from Capitol Hill and COVID-19 news.

It’s Inauguration Day, so expect market focus to be on Capitol Hill. Upon entering the Oval Office, Biden is expected to begin repealing Trump policy.

At the time of writing, the Dollar Spot Index was down by 0.12% to 90.388.

For the Loonie

It’s a busy day on the economic data front. December inflation figures are due out ahead of the Bank of Canada’s first monetary policy decision of the year.

With the markets likely to hold out for the BoC rate statement and press conference, inflation figures will likely have a relatively muted impact on the Loonie.

Rising crude oil prices and optimism towards the economic outlook is likely to leave the BoC in a holding pattern. It remains to be seen, however, whether there’s any hawkish chatter.

At the time of writing, the Loonie was up by 0.11% to C$1.2721 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Dollar’s Weakness is Back

Gold creates a double bottom formation with two hammers on a daily chart.

Nasdaq and DAX bounce from the upper line of a correction pattern.

Dollar index cancels the Inverse Head and Shoulders and drops lower.

EURUSD starts bullish correction.

AUDJPY is heading higher after testing the neckline of a giant iH&S pattern.

USDCHF bounces from the neckline and drops lower with a proper sell signal.

CADCHF goes lower after the false bullish breakout from the symmetric triangle.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Bounces From 50 Day EMA

The Euro has rallied rather significantly during the trading session on Tuesday to bounce from the 50 day EMA. This does suggest that perhaps the uptrend is still very much intact, but currently I do not like placing trades at this spot as we do not have significant support or resistance in the near term. I believe that the 1.20 level underneath is much more important than what we are seeing tested right now, thereby having me look at this market as one that probably grinds back and forth in this general vicinity.

EUR/USD Video 20.01.21

To the upside, we could get his high as the 1.23 level and still not change much. I believe that we are essentially stuck in a 300 point range, something that is quite common for the Euro after all. We have seen a lot of back and forth and I think really at this point most of what is driving this market is the idea of stimulus coming out the United States, and at this point in time it looks to be massive. However, one should not forget that the ECB is more than likely going to do quite a bit themselves, so we will have to see whether or not this can continue to the upside and break above the massive resistance that starts at the 1.23 handle and extends all the way above at the 1.25 handle. At this point, I do not see that happening anytime soon.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Mid-Session Technical Analysis for January 19, 2021

The Euro is trading sharply higher against the U.S. Dollar on Tuesday after posting a minor reversal to the upside the previous session. The early strength is likely being driven by renewed demand for riskier assets ahead of a key speech by U.S. President-elect Joe Biden’s nominee to run the Treasury, Janet Yellen on Tuesday and Biden’s inauguration on Wednesday.

At 11:14 GMT, the EUR/USD is trading 1.2126, up 0.0048 or +0.40%.

U.S. Treasury Secretary nominee Janet Yellen is expected to talk up the need for major fiscal stimulus and commit to a market-determined exchange rate when she testifies later in the day.

Yellen is expected to tell the Senate Finance Committee on Tuesday that the government must “act big” with its coronavirus relief package.

Biden, who will be sworn into office on Wednesday, outlined a $1.9 trillion stimulus package proposal last Thursday, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, it lost much of its recent upside momentum when rising U.S. Treasury yields increased demand for the U.S. Dollar. A trade through 1.2025 will change the main trend to down, while a trade through 1.2349 will signal a resumption of the uptrend.

The minor trend is also up. A trade through 1.2054 will change the minor trend to down. This will confirm a shift in momentum to down.

The main range is 1.1800 to 1.2349. Its 50% level at 1.2074 was straddled on Monday, but buyers managed to push the EUR/USD over this level into the close. On Tuesday, this level provided the support that may have launched the rally. The price action suggests this level may be controlling the near-term direction of the Forex pair.

The short-term range is 1.2349 to 1.2054. Its 50% to 61.8% retracement zone at 1.2202 to 1.2236 is the primary upside target. Aggressive countertrend traders could come in on the first test of this area. They will be trying to create a potentially bearish secondary lower top.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Tuesday will be determined by trader reaction to the 50% level at 1.2074.

Bullish Scenario

A sustained move over 1.2074 will indicate the presence of buyers. If this move creates enough short-term momentum then look for the rally to possibly extend into the short-term retracement zone at 1.2202 to 1.2236 later this week.

Bearish Scenario

A sustained move under 1.2074 will signal the presence of sellers. Taking out 1.2054 will change the minor trend to down and could create enough downside momentum to challenge the main bottom at 1.2025.

The main trend will change to down if 1.2025 fails as support, possibly triggering an acceleration to the downside.

For a look at all of today’s economic events, check out our economic calendar.

Even When She Speaks Softly, She’s Yellen

After posting the first back-to-back decline this year, the MSCI Asia Pacific Index bounced back today, led by a 2.7% gain in Hong Kong (20-month high) and a 2.6% rise in South Korea’s Kospi. The Nikkei and Taiwan’s Stock Exchange rose by more than 1%. Europe’s Dow Jones Stoxx 600 eked out a small gain yesterday and is a little higher today. The S&P 500 fell in the last two sessions for a loss of a little more than 1% and is trading about 0.6% better now.

The US 10-year is firm at 1.11%, while European bonds are little changed, and the periphery is doing better than the core. Of note, France’s 50-year bond sale was greeted with a record reception. The dollar is lower against all the major currencies, but the yen. Most emerging market currencies are firmer as well. We see the dollar’s pullback as part of the larger correction that began almost two weeks ago.. Gold recovered smartly from yesterday’s test on $1800 to return to the 200-day moving average (~$1845). February WTI reversed lower ahead of the long holiday weekend and made a marginal new low today (~$51.75) before recovering nearly a dollar.

Asia Pacific

According to the recent government data, China’s rare earth exports fell by more than a quarter to what Reuters estimates are the lowest in five years. China attributed it to weaker global demand, but there is something else going on. Yesterday, China indicated that a new mechanism will be created to decide, coordinate, and regulate the rare earth supply chain (including mining, processes, and exporting).

Rather than exporting rare earths, China’s industrial policy aims to export products containing rare earths. Move up the value-added chain. The big push now apparently is for batteries for electric vehicles. The PRC has become a net importer of rare earths that it processes. Its imports often come from mines it owns outright or has an important stake. For example, the Democratic Republic of Congo is responsible for 60% of the world’s cobalt.

There are 12 mines, and reports suggest China has a stake in each, and more than 85% of the cobalt exports are headed to China. In 2018, China provided around 80% of US rare earths, and at least one mine in the US sends the material to China to be processed.

For the past several sessions, the dollar has forged a base in the JPY103.50-JPY103.60 area and is probing the JPY104.00 level. The high from January 14 was about JPY104.20, and there is an option for roughly $360 mln at JPY104.35 that expires later today, just shy of last week’s high near JPY104.40. The Australian dollar closed below its 20-day moving average yesterday (~$0.7100) for the first time in a little more than two months.

It rebounded earlier today to $0.7725. The session high may not be in place, and we suspect there is potential toward $0.7740. The dollar’s reference rate was set at CNY6.4883, practically spot-on median expectations in the Bloomberg survey of bank models. The dollar’s four-day advance was snapped today. It has risen from almost CNY6.45 and stalled in front of CNY6.50. Faced with an increase in interbank borrowing costs for the ninth consecutive session, the PBOC injected CNY75 bln in seven-day cash via repo agreements.

It is the first injection after draining for the past six sessions, and it was the largest supply of funds this month. Some liquidity appears to be going into equities, and Chinese traders reportedly bought a record $3.4 bln of HK shares today.

Europe

Despite Germany’s social restrictions, which may be tightened and extended, business sentiment held in better than feared. The ZEW survey assessment of current conditions did not deteriorate as economists expected, though it did not really improve, either. The -66.4 reading compares with -66.5 in December. However, the expectations component rose to 61.8 from 55.0. This is the highest since September and more than anticipated.

The UK Prime Minister, who holds the rotating G7 presidency, has invited South Korea, India, and Australia to the summit in June. Moreover, reports suggest Johnson intends on getting them involved right away, which seems aggressive. It appears to be causing some consternation among other members. Germany, Japan, France, and Italy are opposed.

Italy’s Prime Minister Conte survived the vote of confidence in the Chamber of Deputies yesterday, and today’s challenge is in the Senate. The government support is thinner. However, the ability to secure a majority is somewhat easier given that Renzi’s party will abstain, though it will still be close. A defeat could see Italian bonds sell-off, but Conte will seek to broaden the coalition in the existing parliament before elections are required. This could include independents or members of center-right parties.

Two central bank intervention announcements last week caught our attention. First, Sweden’s Riksbank announced a three-year plan to purchase SEK5 bln a month. The purpose is to fund reserve purchases in SEK and pay down the SEK178 bln fx loans from the National Debt Office, which is thought to be about 70% in US dollars.

The krona was trending lower this year against both the dollar and euro, which follows the krona’s appreciation in the last few months of 2020. The impact is minor in terms of average daily turnover, estimated to be around SEK300-SEK320 bln almost equally divided between euros and dollars.

Second, the Israeli shekel soared in recent months and reached levels not seen since Q1 1996. The Bank of Israel intervened and bought $21 bln in all of 2020, with almost $4.5 bln in December alone, and still the shekel appreciated by 7.5% and nearly 3%, respectively. Businesses and investors were crying for relief. The central bank announced it would buy $30 bln this year, which triggered a powerful short-covering rally that carried the dollar from nearly ILS3.11 to almost ILS3.29 by the end of last week.

Dollar sellers emerged yesterday. It is steadier today, but in wider ranges than typically seen before. Its preannounced intervention war chest may ultimately prove insufficient to prevent shekel appreciation. The $30 bln is roughly twice its current account surplus, but foreign direct investment inflows are nearly the same size as the current account surplus. And yet, net portfolio inflows should be expected, but most importantly, how Israeli offshore investment is managed can be impactful.

Profit-taking on foreign investments or hedging the currency risk, even on a small fraction of the roughly $470 bln of foreign stocks and bonds owned by Israelis, can be a significant force rivaling the current account and direct investment-related flows.

The euro was sold a little below $1.2060 yesterday, its lowest level since December 1st. It reached $1.2130 in the European morning, and the $1.2140 area is the halfway point of last week’s decline. The bounce has left the euro’s intraday momentum indicator stretched.

We expect North American dealers will take advantage of the upticks for a better selling opportunity. Also, note there are around 4.1 bln euros of $1.2190-$1.2200 options that roll-off today. Sterling recovered a little more than a cent from yesterday’s lows (~$1.3520) to today’s high. It faces resistance near $1.3635. Tomorrow the UK reports December CPI figures, and a small uptick is expected.

America

The Senate holds the confirmation hearing for Yellen. She was the first woman to head the Federal Reserve, and she will be the first woman to lead the US Treasury, and the first person to have held both posts. It is a reflection of our age. Like the current Federal Reserve, the former Chair can be expected to recognize the need for fiscal support, while at the same time acknowledging that deficits will decline on the other side of the emergency.

The stock of debt is elevated, but it not extreme in relative or absolute terms. Despite higher debt in 2020, the servicing costs appear to have fallen. Moreover, as the economy grows faster than the level of interest rates, debt will decline as a percentage of GDP. Her remarks on the dollar will be scrutinized. To demonstrate the Biden Administration’s multilateral thrust, at this juncture, it is sufficient for Yellen to acknowledge the G7/G20 position that exchange rates are best set by the market.

At the end of last year, the US Treasury cited Switzerland and Vietnam as currency manipulators. She may be asked about those, and of course, the yuan. The new US Treasury model had the yuan a few percentage points undervalued. However, it is interesting to note that when adjusted for GDP per capita, The Economist Big Mac index of purchasing power parity has the yuan slightly (~2.5%) overvalued.

The economic calendars for North America are light today. The Treasury’s International Capital (TIC) for November will be reported today at the end of equity trading. Capital flows were volatile at the onset of the pandemic, but long-term inflows averaged $23.56 bln in the first ten months of 2020 compared with an average of $27.21 bln in the same period in 2019 and $54.32 bln in the Jan-Oct period in 2018.

The week’s highlight includes the January Philadelphia Fed survey Thursday and weekly jobless claims, as well as Friday’s preliminary PMI. Canada reports the December CPI tomorrow, shortly before the outcome of the Bank of Canada meeting is announced. Although the consensus is for a standpat outcome, a “mini-cut” cannot be ruled out given the official rhetoric. The current overnight target rate is 25 bp. The main feature for Mexico is the December unemployment figures on Thursday. Brazil’s central bank meets tomorrow, and the is little chance of a change in the 2% Selic rate.

Last Thursday, the US dollar recorded its lowest level against the Canadian dollar since April 2018 (~CAD1.2625). Between the modest greenback strength seen yesterday and expectations that Biden cancels the XL pipeline, the US dollar tested CAD1.28. It has come back offered today and is testing the CAD1.2720 area in the European morning.

It can fall a bit further in the North American session, but we look for support in the CAD1.2690 area to hold. That said, a break could signal a move toward CAD1.2640. The greenback held below MXN20.00 yesterday and reversed lower, closing a little under MXN19.69. It has taken out yesterday’s low (~MXN19.66) but struggles to maintain the downside momentum. A move above MXN19.75 would suggest a return to MXN20.00 is likely.

The dollar fell from BRL5.5160 last week, its highest level since mid-Movember, to BRL5.20. The low from earlier this month was around BRL5.12, and there is scope for a re-test.

This article was written by Marc Chandler, MarctoMarket.

For a look at all of today’s economic events, check out our economic calendar.

EURUSD Analysis – Breakout is Confirmed, Yet Obstacles Ahead Remain

The US Dollar is down again after testing a resistance at 90.950, although it is above an important support level of 90.420. The tension rises as Joe Biden’s elected Treasury Secretary and former FED Chair – Janet Yellen is expected to announce before the Senate that the $1.9 trillion stimulus package proposed by Biden’s administration should be approved. Joe Biden also stated that he is planning to extend the travel restrictions from those who travel from Europe and Brazil soon after Donald Trump signed an order to lift those restrictions starting from January 26.

The volatility of EUR/USD will be high and will last until the end of Thursday ahead of the ECB Interest Rate decision.

From the technical point of view, EUR/USD remains bullish following a breakout from the dynamic resistance of the descending channel, however, there are resistances that might halt the further uptrend.

EUR/USD quote on Overbit

Admitting that Euro retraced from an important support of $1.20540 and the impulse was strong enough to break the dynamic resistance, some indicators and levels show that a correction to the uptrend should be expected. By the time of writing this article, EUR/USD quote on Overbit is $1.21287 which is above the Fibo 0.236 level and below the $1.21350 support and resistance zone. While MACD still signals the bullish continuation, RSI indicator is already in the overbought zone.

Closing above the $1.21350 will lead to a jump towards $1.21670 resistance and Fibo 0.382 level and towards Fibo 0.5 at $1.22020 above that. If Euro fails to overtake the resistance mentioned, one should not consider the downtrend continuation of the pair, as it might be a retest of the dynamic resistance as shown on the chart below.

Important Economic data to watch this week for EUR/USD are:

January 20, Eurozone – CPI (YoY) and (MoM), Core CPI (YoY)

January 21, Eurozone – ECB Rate Decision

January 21, US – Initial Jobless claims (Dec), Building permits (Dec) and Philly Fed Manufacturing Index (Dec)

January 22, US – Existing Home sales (Dec)

January 22, Eurozone – Manufacturing PMI (Jan), German Manufacturing PMI (Jan)

Italy’s Government Crisis adds Risk to Outlook for Economic Recovery and Public Finances

The collapse of Prime Minister Giuseppe Conte’s coalition after the withdrawal of junior party Italia Viva, led by former prime minister Matteo Renzi, brings three risks to the fore for Italy.

First, prolonged political uncertainty could impede effective decision making if Conte struggles to reconstitute a robust ruling coalition. Secondly, fresh parliamentary elections, even if unlikely at this stage, could result in victory for Italy’s right-wing anti-EU political parties according to the latest polls.

The third risk is potential damage to Italy’s relations with Europe: effective management of the pandemic response and successful deployment of EU budget funds to stabilise and kick start Italian growth are in the interests of Italy’s regional neighbours – interests undermined by internal policy disagreements among Italian political groupings.

Political impasse might sour relations with other EU members

European institutions may be concerned that Italy’s political parties are embroiled in domestic power disputes rather than focusing on tackling the pandemic and putting to good use the large amount of resources that European partners have entrusted the country with. Italy had a credibility gap at the onset of the pandemic, with an uneven record in fully and efficiently absorbing EU funds. The country is one of the primary beneficiaries of the Next Generation EU recovery fund with allocated loans and grants of about EUR 209bn.

So far, political tensions have had no significant impact on investor confidence, however, unlike in earlier Italian political crises, due to the ECB’s supportive monetary policies. The spread between 10-year Italian government bond yields and that of German bunds rose to around 120bps before declining to around 113bps at the moment, leaving Italy able to borrow at near record low rates.

Italy’s large budget deficit is a concern without a robust economic rebound

The pandemic is still spreading fast. The government has extended a state of emergency to end-April as vaccination scales up.

Pandemic-related government spending – including an additional EUR 32bn (1.8% of GDP) support package announced last week – and a wider fiscal deficit continue to adversely affect the outlook for Italy’s public finances. We forecast a budget deficit of around 9% of GDP this year, after an estimated 11.5% in 2020, with public debt increasing to nearly 160% of GDP and continuing to rise thereafter, underlining the urgency of addressing the public-health crisis promptly.

Conte’s government has agreed on measures to solve structural economic bottlenecks within its national recovery and resilience plan (PNRR). The integration of NGEU and national fiscal stimulus would result in EUR 311bn allocated to six strategic missions over 2021-26, including accelerating digitalisation and the green transition, encouraging innovation and addressing social inclusion. The government has identified accompanying judicial, civil service and tax reform, without, for the moment, providing details.

Rome is counting on fiscal stimulus, ambitious reforms to generate faster growth

The government is counting on the PNRR to boost the economy by 0.5% of GDP in 2021, with the cumulative impact on output equivalent to more than 3pp by 2026, which, together with high forecasted primary surpluses, could return Italy’s public-debt ratio to pre-crisis levels by 2031.

This upbeat scenario from the Italian authorities relies on accelerating reforms to ensure the Italian economy sustainably grows faster – hence the danger of any prolonged political impasse in Rome that stymies decisive economic and fiscal policy making.

For a look at all of today’s economic events, check out our economic calendar.

Giacomo Barisone is Managing Director of Sovereign and Public Sector ratings at Scope Ratings GmbH. Dennis Shen, Director, and Giulia Branz, Associate Analyst, contributed to writing this commentary.

EUR/USD Daily Forecast – Support At 1.2080 Stays Strong

EUR/USD Video 19.01.21.

Euro Gains Ground Against U.S. Dollar

EUR/USD received support near 1.2080 and is trying to get back above 1.2100 while the U.S. dollar is under pressure against a broad basket of currencies.

The U.S. Dollar Index is currently testing the nearest support level at 90.70. If this test is successful, the U.S. Dollar Index will head towards the next support at 90.50 which will be bullish for EUR/USD.

Today, foreign exchange market traders will have a chance to take a look at Euro Area ZEW Economic Sentiment Index for January. Analysts forecast that ZEW Economic Sentiment Index will grow from 54.4 to 57. In Germany, which is the leading EU economy, ZEW Economic Sentiment Index is expected to increase from 55 to 60.

The U.S. dollar managed to rebound from multi-month lows at the beginning of this year, but it remains to be seen whether the recent upside momentum will be sustainable. The 50 EMA will likely serve as a strong obstacle on the way up for the U.S. Dollar Index, and a move above this level will signal that the American currency is ready to continue its upside move which will be bearish for EUR/USD.

Technical Analysis

eur usd january 19 2021

EUR/USD failed to settle below the support level at 1.2080 and is moving towards the nearest resistance level which is located at the 50 EMA at 1.2110. A move above the 50 EMA will signal that EUR/USD will try to develop additional upside momentum.

If EUR/USD settles above the 50 EMA, it will get to the test of the next resistance level at 1.2130. In case EUR/USD gets above the resistance at 1.2130, it will head towards the next resistance at 1.2155. The 20 EMA is located in the nearby so EUR/USD will likely face material resistance in this area.

On the support side, EUR/USD must settle below the support at 1.2080 to continue its downside move. A move below the support at 1.2080 will push EUR/USD towards the next support level at 1.2060. In case EUR/USD gets below this level, it will head towards the support at 1.2040.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the EUR and the Loonie in Focus as Inauguration Day Nears

Earlier in the Day:

It’s was a relatively quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in action early this morning.

For the Kiwi Dollar

Business confidence picked up in the 4th quarter of 2020.

According to the NZIER Quarterly Report,

  • A net 16% of businesses expect a deterioration in general economic conditions over the coming months. This was lower than the 38% in the previous quarter and well below the 68% in March 2020.
  • The building sector delivered strong optimism, while other sectors saw some improvement.
  • Away from the construction sector, businesses were reportedly still cautious about general economic conditions ahead.
  • While demand has improved, firms are still finding it difficult to pass on rising costs by raising prices.
  • Despite resulting weak profitability, increased certainty about the outlook supported hiring and investment.
  • A net 15% of firms are planning to hire in the next quarter, with a net 10% planning to invest in plant and machinery.

The Kiwi Dollar moved from $0.71122 to $0.71118 upon release of the figures that preceded retail sales figures.

In December, electronic card retail sales rose by 3.5% compared with December 2019. In November, sales had increased by 1.4%, year-on-year.

According to NZ Stats,

  • Spending on groceries, furniture, and electronics drove sales, while accommodation and fuel spending dragged.
  • Retail spending rose in 4 of the 6 industries in December 2020 compared with December 2019.
  • Consumables had the largest retail sector increase, rising by 7.5%, followed by spending on durables, which increased by 6.7%.
  • Spending on eating out increased by a relatively modest 1.8%. In spite of containment measures, domestic tourism delivered support.
  • By contrast, spending on hotels, motels, and other accommodation was down by 32% due to a lack of international tourists.

The Kiwi Dollar moved from $0.71120 to $0.71051 upon release of the figures. At the time of writing, the Kiwi Dollar up by 0.25% to $0.7128.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.02% to ¥103.71 against the U.S Dollar, while the Aussie Dollar was up by 0.22% to $0.7698.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Finalized December inflation figures from Germany and ZEW economic sentiment figures for Germany and the Eurozone are due out.

Expect Germany’s ZEW Economic Sentiment figure for January to be the key driver.

Away from the economic calendar, COVID-19 vaccine news along with the latest COVID-19 figures will also influence.

On the political front, the Italian government faces a Senate vote later today that will decide Conte’s fate. On Monday, the Chamber of Deputies voted in favor of Conte’s government following the coalition breakdown.

A political crisis on top of the COVID-19 pandemic would pressure the EUR.

At the time of writing, the EUR was up by 0.09% to $1.2088.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats due out to provide the Pound with direction.

The lack of stats will continue to leave COVID-19 news to provide direction.

At the time of writing, the Pound was up by 0.06% to $1.3595.

Across the Pond

It’s another particularly quiet day ahead on the economic calendar after Monday’s market close.

The lack of stats will leave the Greenback in the hands of chatter from Capitol Hill and COVID-19 news.

At the time of writing, the Dollar Spot Index was down by 0.06% to 90.713.

For the Loonie

It’s a relatively busy day on the economic data front. Manufacturing sales and wholesales figures for November are due out later today.

The numbers are unlikely to have a material impact on the Loonie, however.

COVID-19 news updates from China and the U.S will likely remain the key drivers on the day.

At the time of writing, the Loonie was up by 0.17% to C$1.2735 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Drift Lower

The Euro fell to kick off the week on Monday, but not very rapidly. The 1.20 level underneath should be significant support based upon previous action, so at the very least I would anticipate some type of bounce in this general vicinity. The 1.20 level extends down to the 1.19 level as far as that support level goes, and therefore I think it is only a matter of time before people will be looking to pick up the Euro again. However, if we were to turn around a break down below the 1.19 level it could signal serious trouble, and that could have this market selling off and reaching towards 1.16 level.

EUR/USD Video 19.01.21

A lot of this will come down to the stimulus package in the United States. There are a lot of questions as to whether or not it will get past and how big it will be. Because of this, I think that we will continue to see a lot of noisy trading at best, but I do think that we will start to see some type of stability reenter the picture here. With that in mind, I like the idea of buying a dip, but I do not know that I have the signal quite yet. I will wait to see if I get some type of hammer or anything along those lines on at least the four hour chart before I start putting money to work.

I do not have any interest in shorting this pair, because quite frankly I think it is easier to buy the USD/CHF pair based upon the monthly chart if I were to go in that direction, as the two will move in the same direction over the longer term.

For a look at all of today’s economic events, check out our economic calendar.

Will Inflation Return?

Chief Market Analyst of XTB group discusses key topics and potential market scenarios.

Watch this video to learn:

  • Inflation outlook for 2021
  • What higher inflation would mean for markets
  • Market situation on Gold, DE30, EURUSD
  • Key events for the week ahead

Top news this week include:

  • Biden’s inauguration (Wednesday)
  • US housing starts (Thursday)
  • Flash PMIs (Friday)

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Test Of Support At 1.2080

EUR/USD Video 18.01.21.

U.S. Dollar Tries To Gain More Ground

EUR/USD is currently trying to settle below the support at 1.2080 while the U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index gained upside momentum and is trying to settle above the 50 EMA at 90.95. In case this attempt is successful, the U.S. Dollar Index will move towards the next resistance level at 91.20 which will be bearish for EUR/USD.

Last Friday, the U.S. reported that Retail Sales declined by 0.7% month-over-month in December while analysts expected that they would remain unchanged. The report signaled that the second wave of the virus had already put material pressure on the consumer so the economy clearly needs another round of stimulus.

U.S. President-elect Joe Biden has recently unveiled his $1.9 trillion stimulus proposal. Interestingly, this announcement did not put any pressure on the U.S. dollar. It looks like some foreign exchange market traders believe that the proposed stimulus package is too ambitious and that even some Democrats may want to trim its size.

Technical Analysis

eur usd january 18 2021

EUR/USD managed to settle below the 50 EMA at 1.2110 and is testing the next support level at 1.2080. In case EUR/USD manages to settle below this level, it will move towards the next support level at 1.2060.

A move below the support at 1.2060 will push EUR/USD towards the next support level at 1.2040. If EUR/USD declines below 1.2040, it will head towards the support at the psychologically important support level at 1.2000. There are no important levels between 1.2040 and 1.2000 so this move may be fast.

On the upside, the previous support at the 50 EMA at 1.2110 will likely serve as the first resistance level for EUR/USD. If EUR/USD manages to settle above this level, it will gain some upside momentum and head towards the next resistance which is located at 1.2130. A successful test of the resistance level at 1.2130 will open the way to the test of the next resistance at 1.2155.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from China to Set the Tone for the Day

Earlier in the Day:

It’s was a quiet start to the day on the economic calendar this morning. There were no material stats to provide the markets with direction in the early hours. Later this morning, however, economic data from China will set the tone.

Key stats due out of China later this morning include 4th quarter GDP figures along with industrial production and retail sales numbers.

Unemployment and fixed asset investment figures for December are also due out but will likely have a muted impact on risk sentiment.

For the Majors

At the time of writing, the Aussie Dollar was down by 0.13% to $0.7693, with the Kiwi Dollar down by 0.11% to $0.7125.

The Japanese Yen was up by 0.06% to ¥103.79 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar. Finalized December inflation figures from Italy are due out.

The numbers are unlikely to influence, however.

Expect COVID-19 news and updates from Rome to influence. Political uncertainty, amidst the COVID-19 pandemic, will test EUR support. Conte will now need to avoid going back to the polls…

At the time of writing, the EUR was down by 0.06% to $1.2075.

For the Pound

It’s a quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

The lack of stats will leave COVID-19 news to provide direction. A pickup in vaccination rates should provide support, though the markets will need to see new cases begin to fall.

At the time of writing, the Pound was down by 0.07% to $1.3580.

Across the Pond

It’s a particularly quiet day ahead on the economic calendar, with the U.S markets closed today.

The lack of stats will leave the Greenback in the hands of market risk sentiment and COVID-19 news.

At the time of writing, the Dollar Spot Index was up by 0.03% to 90.800.

For the Loonie

It’s another quiet day on the economic data front. Housing start figures for December are due out later today.

The numbers are unlikely to have a material impact on the Loonie ahead of Wednesday’s monetary policy decision.

Economic data from China and COVID-19 news updates will likely be the key drivers on the day.

At the time of writing, the Loonie was down by 0.26% to C$1.2765 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Darkest Before Dawn

This includes the release of the preliminary January PMI figures at the end of the week. Japan is extending its national emergency to another five prefectures, which collectively account for over half of the nation’s GDP. Germany’s Merkel, not given to hyperbole, warns that the lockdown may last ten more weeks. The Dutch do not appear far behind. England is talking bot tightening its restrictions. Even China appears to be experiencing a flare-up. The pandemic is out of control in the US, although the curve appears to be flattening in some areas.

It was widely recognized that the virus and vaccine are going to dictate the economic story in 2021. The new variant of the virus is more contagious and the roll-out of the vaccine has been frustratingly slow in most countries. The recovery in Q3 seen among the high-income countries was a dramatic snapback but for many, it was not the beginning of a sustained recovery. That recovery may be several months away. The point is that the economic risks for the remaining Q4 20 data and for Q1 21, which just began, are on the downside.

If that is indeed the case, then why have bond yields risen? Is this another disconnect between Main Street and the House of Finance, like stocks rallying during the pandemic? It is darkest before dawn and whether it is four months or six months, the investors expect better news in the second half of the year. At the same time, there will be a new stimulus push in the US. The UK Chancellor of the Exchequer will have to extend aid as the lockdown is extended and intensified. It is likely Germany will have to, as well. Italy’s projected debt issuance is a third higher than it was a couple of weeks ago.

At least four Fed officials have said they could consider tapering before the end of the year. To be specific, the four are regional presidents, while the governors, including Powell and Clarida, have played this down. Currently, the Fed is buying $80 a month of Treasuries (about 55% have been notes of 4.5-years or less before maturing and about 13% in the 20-30 year bucket) and $40 bln a month in Agency mortgage-backed securities. No one is saying that tapering is imminent and a majority of officials that have spoken suggest it does not look particularly likely this year at all. That was also the thinking in last month’s primary dealer survey conducted by the Federal Reserve.

Yet if tapering is not the real culprit for the sharp rise in US yields this year, what is the driver? Where you begin your narrative points you in the direction of the answer, In one telling, the US 10-year yield has risen by around 45 bp since the election as investors discounted greater supply and became more committed to the reflation trade, which means higher real rates, and arguably a sensitivity for higher inflation. At the same time, the price of oil has surged.

The February WTI futures contract closed in October near $36.5. It approached $54 a barrel before profit-taking kicked-in ahead of the weekend. Recall that end of last January it was around $50.50. The deflationary thrust from oil prices has ended. Inflation expectations often track significant moves in oil prices.

Asian demand, including China’s apparent inventory accumulation, drove industrial metal prices higher at the end of last year. On the other hand, supply concerns following last week’s disappointing report on US plantings saw corn and soy prices rise to 6-7 year highs, and cotton traded at a two-year high. The CRB index has risen by over 22% since the end of October.

Even the coming Treasury supply may be exaggerated by partisans. The idea from both sides is that Biden will press ahead with the Democratic control of the legislative branch to push through the rest of the $3.2 trillion bill passed by the House of Representatives last year. However, we suspect it is more likely that Biden, judging from his disposition and that he learned from his experience with Obama, will avoid antagonizing the opposition and souring the relationship from the get-go. Instead, he is likely to find a compromise and make it bipartisan even if it results in a small package. In appointments and temperament, Biden is moderate.

Biden will be inaugurated on January 20. The day before, Yellen will speak at her confirmation hearings. In addition to broad economic issues, she will likely be asked about the dollar. As an economist, she recognizes that ideally one wants the currency to move in line with policy, otherwise it blunts or undermines it. At the Federal Reserve, she recognized that dollar policy is a Treasury remit. That makes it her call now.

The “strong dollar” mantra that existed before 2016 cannot simply be returned to now. A new formulation is needed to confirm that the US will not purposely seek to devalue the dollar to reduce its debt burden or for trade advantage. To signal a multilateral spirit, Yellen may be best served by reiterating the G7 and G20 stance that markets ought to determine exchange rates, that they should move in line with fundamentals, and avoid excess volatility. It does not have to be the final word, but as the first word, it would be reassuring.

Four G10 central banks meet in the coming days. The gamut of outcomes is likely, with the ECB, ironically, being the least perhaps the least interesting. Since it met on December 10, the pandemic has gotten worse and social restrictions and lockdowns have intensified and lengthened. The uncertainty of the US election and UK-EU trade negotiations has been resolved. Key hurdles to the EU’s budget and Recovery Fund were lifted.

The day before the last ECB meeting, the euro settled near $1.2080. It settled last week around $1.2150. March Brent was trading a little below $49 is rallied to almost $57.5 last week before consolidating. The 10-year German Bund yield has risen around 10 bp (to around minus 50 bp) and Italy’s premium has softened from almost 120 bp before the December meeting to almost 100 bp before widening again (115 bp) amid the political challenges in Rome. There is little for the ECB to do now.

The extension of the emergency in Japan to cover the area which generates more than half of the country’s output raises the downside risks. The central bank is likely to formally recognize this in one or two ways. It may shave its downgrade its qualitative assessment. It could also adjust its forecasts. In its last forecasts, issued in October, it anticipated the economy to contract 5.5% in the current fiscal year. Its previous forecast was for a 4.7% slump. The BOJ could also reduce the projection of growth for the next fiscal year, which was seen at 3.6%, up from 3.3% last July.

While peak monetary policy may generally be at hand, the Bank of Canada may be an exception. The overnight target rate sits at 25 bp. It is clear that officials do not want to adopt a negative rate, but Governor Macklem has suggested the lower bound for Canada maybe a little lower than where it is now but still above zero. Given the economic consequences of the spreading virus and some disappointing high-frequency data, the market (overnight index swaps) has a few basis points of easing discounted. It may not exactly be clear what a small rate cut achieves, but last year, the Bank of England and the Reserve Bank of Australia delivered small moves of 15 and 10 bp respectively.

Before this intensification of the virus, the Bank of Canada had seemed to be a candidate for an early exit from emergency policies. Now Norway’s Norges Bank appears at the front of the line. At its last meeting in the middle of December, the central bank brought forward its anticipated first hike to the first half of 2022. Since the December meeting, the high-frequency data points suggest that economic activity and prices are more resilient than feared.

The economy contracted by 0.9% in the three months through November. It was also half as bad as economists projecting. Underlying CPI, which adjusts for tax changes and excludes energy, rose by 3% year-over-year in December. The record drawdown from the sovereign wealth fund provided an early and strong fiscal cushion.

Two emerging market central banks of note meet as well next week. Turkey’s new central bank governor Agbal has made several steps that have given notice that there is a new economic regime. On Christmas Eve he delivered a 200 bp hike outstripping median forecasts for a 150 bp move. The one-week repo rate now stands at 17%. Inflation reached 14.6% last month.

Since the end of last October, the Turkish lira has been the strongest currency in the world, appreciating by about 13.4% against the US dollar. It is still off a little more than 19% since the end of 2019. Over the past three months, the yield on its 10-year dollar bond has fallen by about 105 bp to 5.60%. The market is signaling another rate hike is not needed.

The South African Reserve Bank can also stand pat, though for different reasons. SARB cannot afford to cut any further. Its repo rate is at 3.5% and December CPI stood at 3.2%. After cutting by 300 bp last year, the central bank held steady at the last two meetings of 2020. The implied policy path of SARB’s projections points to a rate hike in Q3 and Q4 this year., though we are a little skeptical that it can be delivered.

This article was written by Marc Chandler, MarctoMarket.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – U.S Politics, Monetary Policy, Economic Data, and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 73 stats in focus in the week ending 22nd January. In the week prior, 46 stats had been in focus.

For the Dollar:

It’s a quiet week ahead on the economic data front.

In a shortened week, there are no material stats to consider in the 1st half of the week.

Through Thursday, Philly FED Manufacturing PMI and weekly jobless claims figures are in focus.

With market attention to labor market conditions, expect the jobless claims to have the biggest impact. Another jump in jobless claims would likely weigh on riskier assets.

At the end of the week, prelim private sector PMI figures for January wrap things up.

Housing sector data also due out in the week will likely have a muted impact on the Dollar and risk sentiment.

The Dollar Spot Index ended the week up by 0.75% to 90.772.

For the EUR:

It’s a busy week ahead on the economic data front.

On Tuesday, January ZEW Economic Sentiment figures for Germany and the Eurozone kick things off.

Germany’s ZEW Economic Sentiment indicator will likely be the key driver.

The focus will then shift to January prelim private sector PMI numbers on Friday. France, Germany, and the Eurozone’s private sectors will be in the spotlight on.

Expect Germany’s manufacturing and the Eurozone’s composite to be the key drivers.

Finalized December inflation figures for member states and the Eurozone, also due out in the week, will likely have a muted impact on the EUR.

On the monetary policy front, the ECB is in action on Thursday. No moves are expected, leaving the press conference as the key driver. Questions on the economic outlook are likely as EU member states extend lockdown periods.

The EUR ended the week down by 1.11% to $1.2082.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include December inflation and retail sales figures, CBI industrial trend orders, and prelim January private sector PMIs.

Expect the retail sales figures and services PMI, due out on Friday, to have the greatest influence.

Away from the economic calendar, COVID-19 news will also influence. Following the vaccine approvals, the markets will be looking for new COVID-19 cases to begin abating.

On the monetary policy front, BoE Governor is scheduled to speak on Wednesday.

The Pound ended the week up by 0.16% to $1.3590.

For the Loonie:

It’s a busy week ahead on the economic calendar.

Key stats include December inflation and November retail sales figures due out on Wednesday and Friday.

Other stats include housing stats, manufacturing and wholesale sales figures. We would expect these stats to have a muted impact on the Loonie, however.

On the monetary policy front, the BoC is in action on Wednesday. With the markets expecting the BoC to hold rates steady, the rate statement and press conference will be the key drivers.

From elsewhere, economic data from China and private sector PMIs from the Eurozone and the U.S will also influence.

Expect COVID-19 news updates and chatter from Capitol Hill to also provide direction.

The Loonie ended the week down by 0.24% to C$1.2732 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a busier week on the economic data front.

Consumer sentiment figures for January are due out on Wednesday.

With consumer confidence key to fueling a pickup in consumer spending and an economic recovery, expect Aussie Dollar sensitivity to the numbers.

On Thursday, December employment figures will also provide direction ahead of retail sales figures on Friday.

Economic data from China and private sector PMI numbers from the U.S and the Eurozone will also influence.

COVID-19 news updates will remain a key driver in the week. however.

The Aussie Dollar ended the week down by 0.70% to $0.7703.

For the Kiwi Dollar:

It’s a quiet week ahead on the economic calendar.

In the 1st half of the week, 4th quarter business confidence and electronic card retail sales figures are in focus on Tuesday.

At the end of the week, Business PMI and 4th quarter inflation figures wrap things up.

Expect business confidence, retail sales, and 4th quarter inflation figures to be the key drivers.

The Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Japanese Yen:

It is a busy week ahead.

Finalized November industrial production figures get things going on Monday.

On Thursday, December trade figures will draw plenty of attention. With the COVID-19 pandemic continuing to wreak havoc, weak numbers could test market risk appetite.

At the end of the week, December inflation figures and prelim private sector PMIs for January wrap things up. The PMI numbers should have greater influence at the end of the week.

On the monetary policy front, the BoJ is in action on Thursday.

The Japanese Yen ended the week up by 0.09% to ¥103.85 against the U.S Dollar.

Out of China

It’s also a busy week ahead.

December industrial production and 4th quarter GDP numbers are due out on Monday. These will be the key stats of the week.

Other stats include fixed asset investment, retail sales, and unemployment figures. Barring dire numbers, however, these stats should have limited impact on market risk sentiment.

On Wednesday, the PBoC is also in action. However, the markets are not expecting any moves.

The Chinese Yuan ended the week down by 0.10% to CNY6.4809 against the U.S Dollar.

Geo-Politics

U.S Politics

It’s a busy week on Capitol Hill.

Inauguration Day and Trump’s impeachment will draw interest.

COVID-19

Vaccination rates and availability of vaccines will be key areas of interest.

An upward trend in vaccination rates and a downward trend on infection rates would support optimism towards an economic recovery.

Corporate Earnings

A number of big names deliver results in the week ahead.

From the U.S

These include:

Bank of America (Tues)

Goldman Sachs Group (Tues),

Netflix (Tues)

United Airlines (Wed)

Morgan Stanley (Wed)

Intel Corp. (Thurs).