[Market Review].
The dollar index rose before falling. The dollar was generally lower against the G10 currencies during the day, with the dollar retreating across the board and the willingness to take risks rebounding. Specifically, the dollar index fell 0.20% to 90.19. The index rose in the Asian and European trading sessions, once rising to 90.95, the highest level since January 20; however, it weakened in the New York session due to the impending release of the Federal Reserve decision and the rebalancing of month-end positions. Investors are also closely watching progress on the U.S. stimulus package. The White House discussed a $1.9 trillion stimulus bill during the day. U.S. Senate Majority Leader Schumer indicated that the Senate may use budgetary tools to pass an Epidemic relief bill, with votes on the budget resolution set to begin as early as next week. In addition, the president’s top economic adviser revealed that the Biden administration may be willing to adjust the threshold for issuing the next round of anti-epidemic stimulus checks to ensure that relief flows to the families most in need of emergency funds. On vaccines, Biden ordered the purchase of 200 million more doses of vaccines and considered restricting entry to the U.S. from more countries.
Gold fell slightly. Next up, a focus on gold. Gold prices fell slightly during the day, closing near $1,850. Markets were concerned about a new round of new U.S. crown aid programs, but a modestly weaker dollar and low performance of U.S. bond yields limited gold’s losses.
Silver closed slightly higher. Not quite the same as gold closing lower, silver moved up slightly during the day to close at $25.42 per ounce, where it is currently oscillating sideways.
The euro resumed its rally. In non-U.S. currencies. The euro fell to near 1.2107 against the dollar before rebounding sharply above 1.2160. The euro rose nearly 9% against the dollar last year, the biggest annual gain since 2017. ECB officials are concerned that a stronger euro will further depress Inflation, which is already below zero. In addition, a stronger euro is detrimental to exporters. In response, ECB policymakers have agreed to take an in-depth look at the phenomenon of the euro’s appreciation against the dollar, focusing on whether the exchange rate has been affected by differences in stimulus policies. This review may affect how the ECB responds to the appreciation of the euro. This may force the ECB to provide more monetary stimulus. Still, the threshold for a more accommodative policy to curb exchange rate appreciation is very high. Nevertheless, the news caused the euro to fall for a while. However, against the backdrop of a weaker dollar, the euro subsequently resumed its gains against the dollar.
The British pound bottomed out and recovered. Likewise, the pound rose quite a bit. The British pound rose more than 60 points against the dollar during the day and is currently trading at 1.3735. The British employment data in the European session was upbeat, giving the pound some support. In addition, the dollar is under pressure, which also gives support to the pound to maintain its strength.
U.S. oil is narrowly oscillating. Finally, let’s look at the oil market. U.S. oil was largely stable during the day and is currently hovering around $52.7. API data showed that U.S. Crude Oil inventories fell sharply by 5.27 million barrels last week, boosting oil prices. Investors are currently weighing supply risks in the crude oil market against the demand outlook. On the supply side, analysis tracking tanker traffic points out that OPEC oil supply is expected to fall by 400,000 barrels per day in January, indicating that the implementation rate of the organization’s production cut agreement is expected to improve. On the demand side, the rally in oil prices has begun to falter as the recovery in global demand continues to face obstacles.
[Risk Warning
Gold: If the U.S. passes the stimulus bill, gold prices are afraid to rise above 1900
U.S. Senate Democratic leader Schumer said Democratic lawmakers may try to use a procedure to bypass Republican lawmakers in order to pass a large part of President Biden’s new crown bailout bill, and may be passed by a simple majority vote. Some strategists said that if the stimulus is passed, gold prices may break through $ 1900.
Euro: before the Fed resolution, the euro is expected to range oscillation
Some analysts say concerns about new toxic strains and doubts about whether Biden can get Congress to approve a $1.9 trillion fiscal stimulus package have weakened risk sentiment. In addition, political uncertainty in Italy and relatively low inflation expectations in the euro zone could weigh on the euro. Traders said the euro is expected to fluctuate in the range of 1.2044-1.2190 against the dollar before the Fed resolution comes out.
Canadian dollar: Bank of America Merrill Lynch discusses U.S. and Canadian outlook with a quarterly target of 1.26
Bank of America Merrill Lynch said the U.S. dollar exchange rate has fallen back to equilibrium levels. And international crude oil futures prices, which have exceeded the commodity research team’s forecasted target level of $47 per barrel for 2021, are favorable for the Canadian dollar. The bank sees the USD/CAD target of 1.26 in the first quarter and rising to 1.29 in the third quarter.
[Key Forecast].
23:30 EIA crude oil inventories may decline
First, let’s take a look at EIA crude oil inventories, which were released last week with an increase of 4.351 million barrels, well above expectations. Financial blog Zero Hedge commented that this was the first Time this year that crude oil production recorded an increase for the week, but overall crude oil inventories are still hovering at nine-month lows. U.S. crude oil production is still in order, despite the rise in oil prices prompting a significant increase in drilling.
This morning, API crude oil inventories have been released, down 5.272 million barrels. Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories could also decline.
Even so it is still necessary to pay attention to the current market expectations, the U.S. to the week of January 22 EIA crude oil inventories or an increase of 603,000 barrels, if the release of data more than expected, oil prices may short term dip; if the inventory data is less than expected, oil prices are expected to strengthen.
Thursday 03:00 Federal Reserve is likely to maintain stability
Tomorrow morning, the Federal Reserve will announce the interest rate resolution. According to CME “Fed Watch” data, the Fed in January and March this year to maintain interest rates in the 0%-0.25% range of probability of 100%, the probability of raising interest rates by 25 basis points to 0.25%-0.50% range is 0%. The current market also expects that the Fed will hold interest rates steady, while investors are more concerned about when the Fed will begin to scale back its bond purchases and when it will begin to raise rates for the first time. The market is worried that if Powell’s stance is not firm enough, then the discussion that the Fed will start tapering its bond purchases at the end of the year will heat up again, which in turn will trigger a spike in U.S. bond yields. But this is unlikely.
According to a Bloomberg survey, economists say the Fed may delay any changes to its bond-buying program until 2022, when it may begin to scale back purchases. The Fed has hinted that it will not raise interest rates until the bond program ends. The Fed’s forecast last December showed that rates would remain at that level until 2023.
Thursday 03:30 Powell is expected to maintain a dovish stance
Then Fed Chairman Powell will hold a conference. In the middle of this month, Powell said there is still a long way to go before maximum employment is achieved, and that he expects to see upward pressure on prices in the short term and needs to see U.S. inflation remain above 2.0% for a period of time. He stressed that the Fed will not raise interest rates quickly, and now is not the time to talk about exiting QE.
The current market also expects that Powell may continue to reiterate that in the foreseeable future, the Fed will maintain the same size of bond purchases. Capitol Macro expects that Powell may take this opportunity to downplay the prospect of tightening monetary policy. The U.S. government may quickly introduce more fiscal stimulus measures. This could put new downward pressure on the dollar and boost commodity prices.
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