[Market Review].
The dollar index rose and then fell. Yesterday evening, the U.S. 10-year Treasury yield once rose above 1.43%, the highest since February last year. U.S. bond yields continued to soar, supporting the dollar index. The U.S. index rose to 90.44 at one point, but it then lost momentum and approached the 90 mark again. Federal Reserve Chairman Jerome Powell’s speech dragged down the dollar. Powell reiterated on Wednesday that U.S. interest rates will remain low and the Fed will continue to buy bonds to support the U.S. economy. He also stressed that the U.S. fears that it will take three years to achieve the 2% Inflation target. During the day, in addition to Powell’s speech, Fed Vice Chairman Clarida also hinted that the Fed is not in a hurry to tighten monetary policy. Fed governor Brainard, on the other hand, said the U.S. economy is still far from its employment and inflation targets.
Gold first depressed and then rose. Gold is moving in the opposite direction of the dollar index. At a Time when the dollar was soaring, gold sank below the $1,790 mark, hitting $1,783.47 an ounce. As the dollar turned weaker, gold saw a rebound back to near $1,800.
Silver tested the 28 handle. Compared to gold, silver’s gains were more pronounced. Silver touched a low of $27.30 down at one point, but then recovered all the lost ground. By this morning, silver continued to rise and has now broken the $28 barrier.
The euro is back near 1.2160. In non-U.S. currencies, the EURUSD was once close to breaking the 1.21 handle during the day. However, as the dollar weakened again, the pair also returned to near 1.2160. Earlier, Germany‘s fourth-quarter GDP was revised slightly higher, which also supported the euro. Thanks to a good export situation and strong construction activity, Germany’s GDP growth in the fourth quarter last year was revised up from 0.1% to 0.3% from the previous quarter.
The British pound surged higher and retreated. In the British pound, the British pound against the dollar was once a strong breakthrough of 1.42, then although retracted some of the gains, but still in the 1.41 high oscillation. The British pound rushed higher and retreated, affected by the previous short term sharp rally in the dollar. In addition, the pound also encountered long profit-taking selling pressure after rising above 1.42.
U.S. oil rose over 3%. Finally, take a look at the oil market. U.S. oil extended its short term rally and is now trading above $63, its highest level in more than a year. Data showing a plunge in U.S. crude production due to extreme cold weather in Texas, as well as effective cooperation between Russia and Saudi Arabia in OPEC+, have supported oil prices. All signs point to a turnaround in the demand side, with inventories continuing to fall both in the U.S. and globally, the analysis said. Overall, this will have a positive effect on the rise in Crude Oil prices.
[Risk Warning].
British pound: Once the correction is over, the pound and the U.S. will still rise
Financial website Fxstreet pointed out that the dovish remarks of Fed Chairman Powell, as well as the UK’s plan to exit the blockade, may prompt the market of the pound to usher in a new round of gains after the end of the correction. It is expected that the support level of the pound against the dollar is at 1.4095, and if it breaks down, it is expected to go down to 1.4050; the resistance level is at 1.42, and if it breaks through, it will look up to 1.4240.
Australian dollar: the Australian dollar still has room to rise, is expected to break through 0.8
Singapore OCBC Wing Hang Bank foreign exchange strategists believe that Australia’s good economic data, as well as faster-than-expected rise in wages, to provide support for the Australian dollar this round of gains. The Australian dollar rose to 0.7973 against the U.S. dollar on Wednesday, and it is believed that the pair will rise to the 0.80-0.81 range in the near term.
Canadian dollar: U.S. and Canadian are expected to fall to 1.2. Be wary of near-term retracement risks
Bank of America Research discusses the technical outlook for the USDCAD. USDCAD is now near 1.25, not yet oversold, the moving averages have declined and the MACD indicator remains negative. The pair is expected to fall to 1.2. However, while the bank maintains a bearish bias in the medium term, it suggests there is room for a tactical correction in the near term. A rally through the 50-day SMA and trend line at 1.2736 could signal tactical upside for USDCAD.
[Key Outlook].
21:30 U.S. Initial Claims may remain high
First, let’s take a look at the initial jobless claims that will be released in the US. In the last two weeks, the number of initial claims released in the US has increased, with last week’s release coming in at 861,000. This indicates that the recovery of the U.S. job market is still not as good as it should be and represents the continued slow recovery of the U.S. economy from the new crown Epidemic. The Federal Reserve also expressed concern about the labor market, reiterating that it will maintain an accommodative policy to help restore employment. However, some agencies commented that the labor market is steadily recovering as additional fiscal stimulus and the number of new confirmed cases of new crown pneumonia decline and more service businesses are able to reopen.
Currently, the market expects that the U.S. initial jobless claims for the week to February 20 will be 838,000. If the published value is much higher than expected, the dollar index may come under pressure; conversely, if the published value is less than expected, the dollar index may strengthen.
With the rapid vaccination, the U.S. labor market will gradually recover, but the pace of recovery may not be so fast.
21:30 U.S. Q4 GDP may be revised up
At the same time, the US will release the revised GDP for the fourth quarter of last year. Starting from 3Q18, U.S. GDP gradually weakened, recording -31.7% in the second quarter of last year and rebounding to 33.1% in the third quarter. At the end of last month, the U.S. released a preliminary annualized GDP for the fourth quarter recorded at 4%. Some analysts say that economists expect economic growth to slow further in the first quarter of 2021 as the new coronavirus is not yet under control, but that the economy will return to growth in the summer as additional stimulus measures take effect and more Americans are vaccinated.
Currently, the market is expecting a revised annualized quarterly U.S. real GDP of 4.2% in the fourth quarter. If the published value is better than expected, it may be positive for the dollar index; conversely, it may be negative for the dollar index.
Friday 04:00 Williams may maintain a dovish tone
Early tomorrow morning, New York Fed President Williams will speak. Last week he said that the economy has been in a period of slow growth due to the spread of the winter virus, and that he is on the fence about the Fed’s bond-buying program, and that there is still quite a long way to go before inflation returns to 2%. In the last two days, Powell testified before the U.S. Congress, where he reiterated the Fed’s policy stance of keeping interest rates near zero until full employment and inflation rise to 2%; the bond-buying program will remain unchanged even if the outlook is seen to improve. He believes that the economic recovery has a long way to go and that signs of rising prices do not necessarily lead to sustained high inflation.
Taken together, we believe that Williams will emphasize the slow growth of the economic recovery and the need to maintain the bond-buying program. His stance should not be too far from Powell’s, plus he may comment on the climb in U.S. bond yields.
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