Market optimism high ahead of ECB policy meeting

Market Recap

Market sentiment is elevated on Thursday after Joe Biden was sworn in as US President, raising hopes that US stimulus will soon be on its way to the American economy. Asian markets have taken their cue from yesterday’s US trading session and are posting broad based gains today.

The Nikkei 225 traded higher by around +0.80 percent, while China’s CCI 300 is up close to +1.5 percent as the index trades near a thirteen-year high. Asian stocks are clearly hopeful for more US stimulus and friendlier Sino-US relations.

Australia released its monthly jobs report earlier this morning which showed that the Australian economy added +50,000 jobs. The headline number was in-line with forecasts but notable down on the previous months number of +90,000. The AUDUSD pair has risen after the report and is edging closer to the 0.7800 handle.

US futures are also moving higher this morning, with the Nasdaq and the S&P 500 trading at all-time highs after Wednesday’s breakout. The Dow Jones Industrial Average also trades within touching distance of a new all-time high.

The Bank of Japan kept policy unchanged at -0.10% today and noted that the central bank will not hesitate to take further action if warranted during the pandemic. Other highlights of today’s policy meeting include raising Japan’s GDP and Inflation forecasts for 2021, and notable optimism over the vaccine rollout.

Traders have bought the Japanese yen in response to the policy meeting. The USDJPY pair has broken under pivotal support, and trading around the 103.30 handle. Weakness in the greenback is also weighing on the USDJPY.

Wednesday’s Bank of Canada policy meeting revealed that the central bank was more positive towards the Canadian economy than expected. The USDCAD pair was hit hard by news and fell to a new multi-year trading low close to the 1.2600 level.

Another unexpected rise in crude oil stocks is also dragging on oil prices. This has also helped cushion the heavy sell-off in the USDCAD pair somewhat.

Day Ahead

The European session focus is going to be on the upcoming European Central Bank policy meeting as the economic docket is notably light in the run-up to the ECB decision. Headlines may come out from the EU Summit today, however, they will probably be coming out until much later today.

The central bank is expected to keep policy unchanged and expand on how they intend to enforce bond yield targeting. Rumours have been circulating all week about the ECB working on a plan on how to target EU bond yields.

Today, the euro currency is starting to firm against the greenback, however, other euro crosses are still coming under pressure. The technicals do not look great for euro crosses at the moment, so this could be foreshadowing more upcoming weakness.

Yesterday the EUR/GBP pair started to break lower, however, the down move has started to stall ahead of the ECB policy meeting. This is one cross pair keeping a close eye on today.

Sterling is starting to firm above the 1.3700 handle after yesterday’s hotter-than-expected CPI number. The GBPUSD pair has considerable scope to advance higher and could easily start to head towards the 1.4000 handle on more positive UK data.

The FTSE100, German DAX, and CAC40 are all on the rise this morning The FTSE100 looks the strongest of the indices at the moment and has scope to advance above the 6,700 level if US stocks continue to head higher later today.