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Market Wrap
As the impact of the pandemic on the path of inflation dissipates, the ECB is withdrawing their net purchases under the PEPP and starting to scale down the balance sheet. The German 10-year yield has recently pushed back into positive territory, so this is likely to continue if the ECB tightens monetary policy. To determine whether the ECB is turning hawkish, investors will be looking at how much is purchased within the APP for the overall net purchases.
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The EURUSD initially bounced but has since the close of the London session found its way back to the lows of the day and the bottom of the rising trend channel. 1.13500 is still acting as a magnet. A break lower is likely to find support at 1.1270 & 1.1180 which have been significant levels recently.
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The EURGBP trade we put on yesterday has started to work out in our favour on the back of what the ECB said today so the daily trend in the euro is still to the downside.
The forex heatmap points to a more risk-on day today, with the Aussie remaining the strongest currency after the employment data and the euro becoming the weakest after the ECB monetary policy report. The start of the US session showed investors were willing to buy into the US equities with the DOW jumping over 400 points and all large cap US indices trading over 1% higher at the London close.
There was quite a lot of data out today from the US session which has helped keep the US dollar index above $95.50 but unable to breach the resistance level of $95.80.
Initial jobless claims last week were much higher than expected at 286K, an increase of 55K over the previous week’s revised higher figure. The trend is going in the wrong direction as it has reached a 3-month high. A spike in COVID-19 cases spurred by the Omicron variant disrupted business activity as employers struggled to retain workers amid record levels of employee resignations. The US Jobless Claims 4-week average came in higher at 231.00K
US Philly Fed Business Index for January came in higher than expected at 23.2 and above the previous reading of 15.4. Orders were up but so were prices paid adding to the inflationary story. Employment was down.
According to the National Association of Realtors (NAR), existing-home sales in the United States fell 4.6% in December from the previous month, reaching a seasonally adjusted annual rate of 6.18 million, below market expectations.
On an annual basis, the figure rose by an astonishing 8.5%, its highest level since 2006. For all housing types, the median existing-home price increased by 15.8% to $358,000 from December 2020
US EIA Weekly Crude stocks were higher by 0.515Million barrels. Versus an expected draw of -0.938Million barrels. Gasoline was also a build whereas Distillates which is diesel and commercial fuels was a draw of -1.431Million barrels.
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Brent found a new weekly high and is currently trading back above the $88 per barrel levels and could be printing a bullish engulfing candle for trend followers to trade tomorrow. Brent is currently up 23% over the last months trading.
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The USDCAD is preparing for a break lower as energy prices rise. On an intraday chart the double bottom at 1.2450 would be a trigger for momentum traders to join in the selling.
