Equities rise in Asia as the Lunar new year celebrations and US president day pass. The rise in risk markets like Asian equities is based on more optimism around economic recovery tied to fiscal aid from the USA and the faster rollout of covid-19 vaccines.
In the overnight session we had the RBA meeting minutes released and the key take away from them is that they will follow other major central banks in keeping with the ultra-loose monetary policy and commit to doing whatever it takes to support the recovery and get inflation above 2%.
Winter has come for some -especially those in the mid-west of America including the state of Texas, which has been gripped by a severe cold snap with temperatures not recorded for over 30 years. In these moderate climates there is usually no need for salt trucks to grit the roads, so infrastructure in these adverse conditions is starting to grind to a halt, with power blackouts reported and Oil refineries having to shut down. This is one of the reasons oil prices are supported above the $60 handle. On the hourly chart crude oil could be creating a bullish technical flag pattern, which if this is the case, would project much higher prices above the recent high on a confirmed breakout.
The US dollar index continues to trade around the $90 level and needs to get up to $90.80 level for a sign of a possible bullish reversal. In the last few hours during the Asian session, we took out recent day’s lows, so a bear trend continuation is the most likely scenario today. With the weather disruptions we can expect lower output, which would put pressure on the greenback, but as we look to the fixed income market the rising yields are supportive at these current levels. The EURUSD has benefitted from continued US dollar weakness but in the last 6 trading days has been in a very tight trading range and unable to take out the swing high formed on January 21st of this year. Any uptick in US dollar prices could signal the confirmation of the bearish reversal pattern on the daily time frame as the price action is making lower swing highs and lower swing lows.
The risk on / risk off sentiment will be based around the vaccine news that comes through the newswires, but we do have the ZEW Economic Sentiment Index today from Germany. Since April 2020, the ZEW has seen positivity sustaining above the last 5 years average and continued positivity could be based around export news out of Germany and the EU’s desire to improve on trade agreements with the USA.
Later on, tonight we will receive the Japanese trade data and traders will be looking for an increase in the trade surplus. Japan is a nation of exporters and their trade surplus should it rise will be a leading indicator that the global supply chains and overall economy is moving forward positively. The yen is a safe haven currency, and it has been shunned in favour of the US dollar since the beginning of January 2021, with healthy pullbacks in the daily price action showing market structure and support with higher highs and higher swing lows. 105.55 to 105.70 is a resistance zone but the risk on sentiment should see us break through there in the near future. The ActivTrader platform is showing that traders are leaning towards the downside for the USDJPY but are relatively mixed on the direction this pair will take. For me this is not bearish until the low from last week is tested and we close below the 104.40 level.