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market review 15 January 21

15 January 21

Markets “sell the fact” on Biden’s stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell’s pledge to keep monetary policy accommodative. US retail sales, consumer confidence, and other figures compete with coronavirus figures for impact on markets.

Fiscal stimulus: President-elect Joe Biden presented a $1.9 trillion relief package as expected. The scope of the plan – the first of a two-pronged approach – was already priced in by markets. Moreover, the incoming Commander-in-Chief talked about people “paying their fair share” and investors are concerned about rate hikes. It is also unclear how much of the plan can be approved as Democrats have thin majorities in Congress.

Monetary stimulus: Jerome Powell, Chairman of the Federal Reserve, clarified that rate hikes are not coming anytime soon, nor is tapering of bond-buys. US Treasury yields are on the back foot, weighing on the greenback until the market mood soured.

Gold has been clinging to $1,850, edging higher amid prospects of more fiscal and monetary stimulus.

UK: Britain is set to further accelerate its vaccination campaign next week. Prime Minister Boris Johnson is under pressure from a group of MPs pushing to loosen the lockdown. The recent measures are beginning to bear fruit, as cases are declining.

Europe: France has announced an early nighttime curfew to enhance social distancing and curb the spread of the virus. German Chancellor Angela Merkel is mulling tightening restrictions as cases and deaths remain elevated. Spanish regions are also imposing new limits in the wake of a post-holidays wave.

USD/CAD Price Analysis: Eyes 50-HMA on the road to recovery

USD/CAD extends its recovery from the lowest levels since April 2018 reached at 1.2625 on Thursday.

The bulls are rescued by the rebound in the US dollar across the board, as investors resort to the safety bet amid anxiousness over President-elect Joe Biden’s $1.9 trillion stimulus plan, weak US jobs data, and resurfacing covid fears.

Further, the 1% drop in WTI prices is also underpinning the recovery in the CAD pair.

Looking at it technically, the price has recaptured the 21-hourly moving average (HMA) and looks north towards the bearish 50-HMA resistance at 1.2684.

The move higher is backed by the Relative Strength Index (RSI), which has pierced above the midline, currently trading at 52.62.

The next hurdle is seen at 1.2710, which is the horizontal 200-HMA.

The 21-HMA at 1.2660 could limit any pullbacks, below which the psychological 1.2650 support would come into the picture.

The multi-year troughs at 1.2625 would be the final resort for the bulls.

USD/JPY keeps the rangebound theme unchanged – UOB

24-hour view: “We expected USD to ‘trade sideways between 103.70 and 104.10’ yesterday. USD subsequently rose to 104.19 before dropping sharply to an overnight low of 103.55. While the rapid drop appears to be running ahead of itself, there is scope for USD to dip below the strong support at 103.50. For now, the next support at 103.25 is unlikely to come into the picture. Resistance is at 104.00 followed by 104.15.”

Next 1-3 weeks: “There is not much to add to our update from Wednesday (13 Jan, spot at 103.75). As highlighted, the outlook is mixed and the USD could trade between 103.00 and 104.40 for now. Looking forward, the risk for a break of 104.40 first appears to be higher but USD could trade within the range for a while more.”

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