[Market Review].
The dollar index rally slowed down. The dollar index rose 0.03% to 91.12 during the day, after rising to a two-month high of 91.30 earlier in the session. January ADP employment rose by 174,000, far exceeding expectations of a 49,000 increase. In addition, January PMI data also performed beautifully. However, these news did not have an impact on the currency market. The focus of market attention is still on the U.S. stimulus bill. Recently, U.S. President Joe Biden has been running around to promote a new round of stimulus bills. Biden said in an intra-day conference call that he was willing to consider stricter eligibility requirements for stimulus check disbursements, but was not willing to lower the $1,400 standard. For now, there are persistent bipartisan differences on issues such as check disbursement. We can wait for the follow-up developments.
Gold closed slightly lower. Next, let’s focus on gold. The dollar and U.S. bond yields are continuously higher, putting pressure on gold prices. Gold oscillated narrowly in the $1830-1840 range during the day and finally closed slightly lower.
Silver traded sideways. Similar to the trend of gold, silver is also in a sideways consolidation state, narrowly oscillating around $26.7 during the day. The short-selling sentiment dissipated and silver prices returned to lower levels.
The euro fell slightly. In non-US currencies, the euro fell slightly against the dollar during the day, hitting a low of 1.2004. yesterday we also mentioned that Italian President Mattarella, ready to let former ECB President Mario Draghi form a coalition government. The news boosted bond and stock markets, but the euro largely ignored it.
The British pound slowed down. Like the euro, the pound fell slightly against the dollar during the day and is currently trading around 1.3640. The UK composite PMI fell from 50.4 in December to 41.2 in January, the lowest value since May last year, but better than the initial January value of 40.6 and not as bad as the 13.8 that fell when the UK first implemented the embargo last spring.
U.S. oil rose sharply. Finally, let’s look at the oil market. U.S. oil surged higher during the day, rising more than 1% to touch a high of $56.29 a barrel, climbing to its highest level in more than a year. The oil price surge was due in large part to a commitment by OPEC and its allies to continue to draw down global inventories.
[Risk Warning
Silver: Short-selling sentiment cools. Be wary of pullbacks in silver prices
Analysts at the financial website Forexlive point out that silver’s short term gains have even sparked concern from the U.S. Commodity Futures Trading Commission, as well as Chicagoland’s increase in silver futures margins to suppress price speculation. From the daily level, silver formed a double top pattern near $30, you can consider doing more on the low above the 100-day SMA and the rising trend line that started near $11.23; once it breaks below the 200-day SMA, look down to $22.
Gold: Low real interest rate environment will support gold
Rising U.S. 10-year Treasury yields and the outperformance of risky assets have dampened gold’s appeal as a safe-haven asset. The recent strength of the US dollar has also had a negative impact on the precious metals market. However, ANZ strategists believe that gold remains a good risk diversification tool amid rising Inflation expectations and high stock market valuations.
Euro: Weakening European economic outlook Downside pressure on the euro remains
The U.S. political push to introduce more stimulus initiatives will stimulate the economy. In contrast, Europe has extended the embargo in many places and the eurozone GDP is expected to shrink in the first quarter of this year. The gap between the U.S. and European economic recovery seems to be widening. Against this backdrop, some analysts say there is now downside pressure on EURUSD with support at 1.20 and 1.1980; if the pair rallies above 1.2050, it will be bullish with resistance at 1.2065 and 1.2085.
[Key Outlook].
20:00 Bank of England is likely to stay put
First look at the Bank of England will announce the interest rate resolution, the Bank of England Governor Bailey previously said that the new crown Epidemic re-emerged to make the British economy into a very difficult period, may slow down the economic recovery. He said the Bank of England should consider negative interest rates as one of the options in its toolbox, but did not discuss negative interest rates. Affected by the blockade policy, the market expects the BoE to lower its GDP forecast for the first quarter of 2021. In addition, the BoE will focus on discussing the negative interest rate policy. However, there seems to be no agreement on the implementation of negative interest rates as insiders are divided on the economic outlook.
TD Securities predicts that the BoE is unlikely to introduce negative interest rates in the current economic cycle. This is consistent with the general expectations of the market, and in addition the BoE is unlikely to adjust the size of its bond purchases.
21:00 Bailey may continue to downplay negative interest rate expectations
After the resolution, Bank of England Governor Bailey will speak. Keep an eye on his attitude towards vaccinations. If he thinks vaccinations can quickly help the UK economy recover, then the BoE is unlikely to expand bond purchases or introduce negative interest rates.
In the middle of last month, he downplayed negative interest rate expectations, saying there were many problems with dropping rates below zero. If Bailey continues to downplay the need for negative interest rates, the pound is expected to continue to rise, a relatively high probability. But if he again triggers speculation about the possibility of negative interest rates, the pound against is expected to fall sharply and quickly.
21:30 U.S. initial claims may gradually decrease
Next, look at the U.S. will release the initial jobless claims. In the last two weeks, the number of initial claims released in the United States has decreased, last week’s release of data was 847,000. The financial blog Zero Hedge commented that initial jobless claims have been trending up significantly over the past two months as the embargo has been extended across the US.
Recently, initial jobless claims did drop slightly, but they are still above the lows and well above the pre-blockade levels. Considering the sudden reopening of employment in many states following the swearing in of a new U.S. president, the labor market may have now seen its most painful moment.
Currently, the market expects that the US initial jobless claims for the week to January 30 will be 830,000. If the published value is much higher than expected, the US dollar index may come under pressure; conversely, if the published value is less than expected, the US dollar index may strengthen.
Currently, the U.S. is starting to increase its vaccination efforts and the number of new crown additions is decreasing, which will gradually spread to the labor market, and the number of U.S. initial claims may gradually decrease.
Friday at 08:30 the Australian Fed will maintain an accommodative tone
Finally, take a look at the policy statement that will be released by the Australian Federal Reserve. On Tuesday, the Australian Fed left its benchmark interest rate and 3-year government bond yield target unchanged at 0.1%, in line with market expectations. The Australian Fed also announced that it will buy a further A$100 billion in bonds when the current QE program expires, starting in mid-April at a rate of A$5 billion per week.
On the inflation front, the Australian Fed stressed that it will not raise interest rates until inflation reaches the 2%-3% range, and that inflation and wage growth will both remain below 2% in the coming years. On the economic front, the Fed expects GDP to grow by 3.5% in both 2021 and 2022, and that GDP will recover to the level of late 2019 by the middle of this year.
Therefore, we expect the Australian Fed to maintain an accommodative tone, reiterating the pressures on the economy and emphasizing the need to increase bond purchases. This is already expected by the market and should not have too much impact on the Australian dollar, so just keep an eye on it, folks.
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