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Midday Brief
Yesterday ended quite positively for the Risk-On assets that had been under pressure from the start of the week. In overnight trading, the general consensus was to the upside though new worries around a US-Sino breakdown in relations capped China’s equity markets while other Asia-Pac trading continued to the upside.
The US dollar has been treading water for the last couple of days so the likes of the EURUSD could make a decent move today as compression in prices generally leads to an expansion. Today’s majority of Tier-1 data points come from the Euro Area and while I expect the London session to be relatively quiet, I do expect some price movement from lunchtime as we digest the European Central Bank (ECB) interest, deposit and refinancing rates decisions, which then leads into the US Initial Jobless claims data.
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The EURUSD is currently trading above a trend line that I marked up on the chart and this could signal the start of a bullish move away from the down-trending channel. The 200ema and 50ema are both still signalling a bullish trend on the daily time frame, so this correction to 1.1755 could be over, in which case the 1.2300-1.2400 would be upside targets.
EURUSD sentiment on the ActivTrader platform is still heavily weighted to the downside with 64% of traders bearish the single currency.
The ECB is expected to keep their -0.5% deposit rate on hold so any divergence from that will be market moving as will any variations in forward guidance or new market signals from the ECB press conference headed up by President Lagarde. To some, it would seem that the central banks are generally losing the fight with inflation and the ECB will be focusing a lot more on climate change in a bid to find ways to not only save the planet but to conjure up more streams of money creation. Plus no one can criticise you for trying to save the planet. Other topics of questioning may centre around the Digital Euro as a lot of central banks will be now trying to catch up with the Peoples Bank of China (PBOC) and move towards a crypto/digital version of their currency. Whether or not the ECB or Bank of England are next in the crypto space is to be seen, but the Fed has also signalled they are considering a crypto dollar. So, something to keep an ear out for in the press conference.
What is clear is that the coronavirus is still a major concern and disruption for the eurozone and only when the curve gets flattened across the continent will economic health return. The European Union are lagging the United Kingdom and the USA in their vaccination rollout and news from the US last night stated that 200 million doses of vaccine had been administered before the self-imposed 100-day deadline that President Biden had set his administration.
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The US dollar index is currently at some minor support around the $91 level. There is a rising trend line that could act as further support just below but if there is an expansion higher for the euro based on some good news that comes out today, we could see the dollar decline to test the $90 demand level. The worry is that the market has priced in all of the decisions that the ECB will likely make and that we trade sideways until we get the FOMC minutes and press conference.
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Yesterday’s move in the USDCAD to the range lows supported by the 1.24900 price level look to be continuing to hold into the start of the London session. The dramatic move to the downside is likely to be corrected over the course of the next day or so unless we get significant movement in the US dollar or Oil markets.
