[Market Review].
The US Dollar Index surged higher and retreated. As the U.S. market was closed for the holiday, major currencies kept trading in the previous range. The dollar index touched 90.97 during the day, approaching the 91 mark, and then fell back to around 90.7. Goldman Sachs is bullish on the U.S. economy. In a report, Goldman Sachs economists raised their 2021 U.S. GDP growth estimate to 6.6% from the previous 6.4% and lowered the U.S. unemployment rate estimate to 4.5% at the end of 2021 from the previous 4.8%.
Gold bottomed out. Next, let’s look at gold. Gold prices dipped sharply yesterday morning, approaching the $1,800 mark, but then saw a rebound and are now back near $1,840.
Silver has shaken to the upside. The trend in silver is roughly similar to gold. Earlier, the silver price once fell to $ 24 near, then shock up, now has rebounded to $ 25 near the mark.
The euro is narrowly oscillating. In non-U.S. currencies, market sentiment has become cautious during the day as U.S. financial markets are closed for the holidays and Treasury Secretary-designate and former Fed Chair Yellen will attend nomination hearings in Congress. And many news from Europe is also waiting for further digestion in the market. Germany’s ruling coalition held a new party head election over the weekend, ending with a high victory for Raschett, a close ally of incumbent Chancellor Angela Merkel, which temporarily eased market concerns about the prospect of political change in Germany. However, political risks in countries such as Italy and the Netherlands continue, and market concerns about the safety and effectiveness of vaccines continue to cause global market risk sentiment to remain on the cautious side, and thus non-US currencies, led by the euro, remain under pressure. The euro against the dollar intraday low 1.20 near the narrow range of oscillation.
The British pound fell before rising. Let’s look at the British pound again. GBPUSD fell to around 1.3519 during the day before recovering to 1.36. The surge in the number of cases hit global risk appetite, but speculators remain bullish on the outlook for the pound, and futures data also showed net long positions in the pound rose to the highest since March 2020.
Oil prices are in shock. Finally, a look at the oil market. U.S. oil traded in a narrow range around the 52 line during the day. With the number of new crown infections climbing, the outlook for market demand is once again in doubt, but uncertainty on the supply side is supporting oil bulls to continue to power ahead. On the supply side, Libya’s oil production fell by about 200,000 barrels per day after a leaking pipeline was shut down.
[Risk Warning
Euro: The euro is expected to be under pressure in the short term, targeting down to 1.2050
The euro has been hovering below 1.21 against the dollar, with the next target at 1.2050 and then 1.20, as investors have been concerned about the ongoing political crisis in Italy, especially as political uncertainty seems to have passed from Italy to the Netherlands. 1.22 to remove downside pressure.
New Zealand dollar: the dollar’s strength to suppress non-U.S. New Zealand dollar will test 0.7006
Credit Suisse analysts pointed out that before the inauguration of the new U.S. President Joe Biden, the dollar index’s retaliatory uptrend is expected to continue, which puts pressure on non-U.S. commodity currencies. In the current news background, in the next week before the Fed rate resolution, the New Zealand dollar against the dollar will be further tested 0.7006. However, if there is no more negative news, the currency pair is expected to hold the 0.70 mark, and gradually regained the trend afterwards.
Crude oil: Oil market outlook bright, but still faces challenges
Danske Bank said that the oil market still needs to endure the oversupply brought about by the gradual normalization of OPEC+ production and the slow rise in U.S. shale oil production during the rollout of vaccination efforts and the achievement of a full economic recovery; in addition, the reignition of the epidemic in Europe and the United States will trigger a new round of blockade restrictions, which will also put a damper on oil demand.
[Key Forecast].
17:00 IEA may maintain crude oil demand growth rate expectations
First of all, let’s take a look at the IEA will release the crude oil market report. Last week, OPEC’s monthly report showed that OPEC’s crude oil production increased by 280,000 barrels per day in December, a smaller increase. The agency raised its global crude oil demand growth estimate for 2020 from -9.77 million barrels per day to -9.75 million barrels per day, a modest change. It maintains its 2021 crude demand growth estimate at 5.9 million barrels per day. Overall, this report tends to be neutral. Based on this, we believe that the IEA’s monthly report is not a significant adjustment to global crude oil demand growth and oil prices are likely to maintain the current trend.
23:00 Yellen may emphasize that the market determines the exchange rate
This evening, the U.S. Senate will hold a hearing on Yellen’s nomination for U.S. Treasury Secretary. According to the Wall Street Journal, people familiar with the matter said Yellen is expected to reiterate her commitment to “market-determined exchange rates” at the meeting, making it clear that the U.S. will not seek a weak dollar to gain a competitive advantage. That is, the market will determine the value of the dollar and other currencies. The market will adjust the exchange rate to reflect changes in economic performance and generally facilitate the adjustment of the global economy.
In addition, Yellen will seek to use more accurate language to reflect long-term U.S. exchange rate policy over the past 20 years. Analysis suggests that this approach marks a return to more deliberate wording in terms of U.S. monetary policy.
Taken together, Yellen will reiterate that the market determines the exchange rate, while it will make clear that the U.S. will not seek to devalue the dollar for competitive advantage. The financial blog Zero Hedge concludes that Yellen is not opposed to a weaker dollar, and she may not make that clear at the hearing.
In addition, Yellen may respond to Biden’s stimulus plan, saying that interest rates are currently at historic lows and that a lot of action should be taken for economic recovery. This may depress the dollar index to some extent.
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