[Market Review].
The US Dollar Index surged higher and retreated. The dollar index rose and then fell during the day and is now trading around 90.3. Biden delivered his inaugural address and later signed a series of executive orders, including rejoining the Paris climate agreement and the WHO. With Biden sworn in as President of the United States and Treasury Secretary nominee Yellen calling on Congress to take “significant action” to support the economy, the market is expected to announce additional fiscal stimulus measures soon. Increased government spending will lead to debt growth, which will cause the dollar to depreciate.
Gold is strongly above the $1870 mark. Next, let’s focus on gold. Earlier, gold prices once dipped to near $1830. Gold was weighed down by news that a Pfizer vaccine might be able to fight the UK variant of the virus, according to some analysts. However, gold prices then saw a sharp rebound, at one point pushing upwards through the $1,870 mark. A weaker dollar favored gold’s rise.
Silver bottomed out. Similar to the trend of gold, silver earlier once nearly broke $25, but in the end did not go below the position, and then ushered in a spike, has now risen to $25.7 near.
The euro rose and then fell. In non-U.S. currencies, the euro fell against the dollar, slipping from 1.2158 to 1.2076. European countries are trying to contain the spread of the new coronavirus, but compared with the U.S. and Britain, the euro zone is slower to vaccinate, which may hinder the European economic recovery. At the same Time, investors are also watching the ECB interest rate resolution may reveal the easing expectations. According to officials familiar with the matter, the ECB is currently buying bonds to limit the rise in bond yields.
The British pound once climbed to 1.3719. again open to see the pound. Earlier, the pound climbed to 1.3719 against the U.S. dollar, supported by a high willingness to take risks in global markets and optimism related to the U.K., but then the pair also spit out some of its gains.
The CBC kept interest rates unchanged. Beyond that, let’s focus on the Canadian dollar. Last night, the CBC announced its first interest rate resolution of the New Year, announcing that the benchmark interest rate would remain unchanged at 0.25%, in line with market expectations. After the resolution came out, the Canadian dollar spiked, and the USDCAD plunged 50 pips in the short term, before the decline extended to 0.9%.
U.S. oil rose and then fell. Finally, let’s take a look at the oil market. U.S. oil rose and then fell during the day, generally staying above $53. API crude inventories rose much more than expected, and demand concerns caused by the Epidemic are weighing on oil prices.
[Risk Warning].
Euro: the euro retracement fears continue to focus on the low 1.2054
The euro retreated against the dollar. Some analysts say that the failure of the euro rally means that the retracement trend since the past two weeks will continue. The downtrend will be further consolidated after the market if it loses the 1.21 handle and falls below Monday’s low of 1.2054. Investors can then look down to the 1.20 handle. Thereafter, the differences between Europe and the United States in monetary policy, economic outlook, and epidemic prevention and control will further influence the medium-term direction of the exchange rate.
Japanese yen: the Bank of Japan is expected to ease the U.S. and Japan fear range fluctuations
Rabobank foreign exchange strategist said that the new crown pneumonia cases increased, 60% of Japan’s economy is in a state of emergency. And any deviation from the easing policy path set by the Federal Reserve and the ECB could lead to unnecessary appreciation of the yen, the Bank of Japan will tend to promote an image focused on policy stimulus, the dollar is expected to fluctuate against the yen in the range of 103-104 in the coming months.
Crude Oil: blockade measures tighten Oil prices may be dragged down
The market expects the Biden Administration to continue its massive stimulus program, which will boost fuel demand and reduce crude oil inventories. However, the market remains concerned about near-term oil demand as countries adopt strict blockades and border closures to stop a surge in new crown infections. This will be a drag on oil prices.
[Key Outlook].
11:00 Bank of Japan not expected to increase easing
Today at noon, the Bank of Japan will announce its interest rate resolution. Sources said that The Japanese government’s stimulus package to ease the impact of the epidemic on the economy, the Bank of Japan will probably slightly revised upward economic forecasts for the next fiscal year. ABN AMRO said that the BOJ will take the worsening epidemic into policy consideration. In addition, the Bank of Japan is also troubled by deflation, December CPI data will be released on Friday, the data may indicate that deflation has increased.
ABN AMRO expects that the BOJ will not introduce new easing policy, given the strong Japanese stock market and the central bank’s large ETF holdings, the BOJ will scale back ETF purchases is expected to heat up.
At the same time, the central bank may raise its economic growth forecast, emphasizing increased easing when necessary.
14:30 Haruhiko Kuroda may continue to hint at scaling back ETF purchases
In this afternoon, BOJ Governor Toyo Kuroda will speak. In the last week, BOJ Governor Haruhiko Kuroda said that consumer prices in Japan temporarily fell and have since gradually accelerated the pace of growth. Japan’s economy is recovering, but the situation is still tough and will increase easing when necessary. Last month, he also said that the Bank of Japan’s purchases of Japanese government bonds and ETFs have affected market functions and that such costs must be controlled as much as possible. The central bank will continue to discuss yield curve control and quantitative qualitative easing implementation methods. We therefore believe that Haruhiko Kuroda may again emphasize that the economy is gradually recovering and may control the purchase of JGBs and ETFs.
20:45 ECB hardly makes a big move
This evening, the European Central Bank will announce its interest rate resolution. Because of concerns about the rapid spread of the Variant virus, several European governments announced last week that they are strengthening and extending anti-epidemic blockade restriction initiatives, and that vaccination is not expected to have a noticeable effect until mid to late spring. The ECB has already scaled up its emergency anti-epidemic bond purchase program to 1.85 trillion euros last December, and in the short term, the central bank may shift its focus away from bond purchases. In the coming months, the ECB is likely to repeatedly emphasize “maintaining favorable financing conditions during the epidemic”.
Societe Generale said that a better approach for the ECB in the coming period would be to protect favorable financing conditions and maintain the lowest financing costs, while allowing Inflation to approach the target in the long run. Therefore, Societe Generale believes that growth expectations are weakening due to the long-term blockade, but the ECB will not act in the short term.
Also, keep an eye on the ECB’s attitude towards a stronger euro and inflation. A stronger euro will drag down inflation and affect the ECB’s ability to meet its inflation target. In such a situation, the ECB may be concerned about the strength of the euro, that the ECB will not hint at measures to suppress the euro, will be an important point to watch.
21:30 Lagarde is expected to express concern about the strength of the euro
At the subsequent conference, Lagarde will speak. In the last week, she discussed the current state of the eurozone economy and the outlook. She said that the year has started relatively positively. The early stages of vaccine distribution have been difficult. But some uncertainties have been removed, such as Brexit, the U.S. election, and vaccine approval. On the policy side, she pledged that the ECB is determined to maintain a good financing situation and that the recovery of the economy needs continued fiscal and monetary policy support. Lagarde also mentioned the more recent strength of the euro. She said that the ECB is very careful to monitor foreign exchange movements and will be “extremely concerned” about the impact of the exchange rate on prices.
Based on this, we believe that Lagarde may take more time to warn of the damage of high Exchange Rates on the economy and inflation. This may short term depress the euro.
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