[Market Review].
U.S. indexes have slowed down their decline. The dollar underperformed in the first four trading days of last week due to expectations of a massive stimulus coming from Biden, but recovered lost ground slightly on Friday. The worsening of the Epidemic has cooled market risk sentiment, with investors choosing to abandon risky assets and embrace the safe-haven dollar. However, the dollar index still closed down 0.5% last week to 90.23. Looking ahead, investors are concerned about the Federal Reserve interest rate resolution to be held this week.
Gold prices slowed their rise. Next, let’s focus on gold. Large-scale stimulus expectations also affected gold prices. Gold was hotly contested by funds last Wednesday, with gold prices jumping 1.72% on the day, and also recording varying degrees of gains in the first two days of the week. However, some signals from Congress indicate that Biden’s proposed stimulus bill, is widely questioned by Senate Republicans. Market expectations for the bill’s passage eased and gold prices were subsequently countered by short positions. Nonetheless, gold still recorded its first weekly gain in three weeks.
Silver oscillated in a narrow range around 25. Silver is moving roughly similarly to gold. Silver narrowly lost $24 on Monday, then rebounded upward, once above the $26 mark, before falling back a bit to close up 3.5% on the week.
The euro moved sideways after a big gain. On the non-U.S. currencies. The ECB kept interest rates steady and promised to provide more support to the economy if necessary. Despite ECB President Lagarde’s warning that the new crown epidemic has re-emerged. Long-term epidemic restrictions that could challenge the economic outlook for the eurozone. However, the market did not react well to Lagarde’s comments. In addition, embargo restrictions hit the eurozone’s dominant service sector, and eurozone economic activity contracted significantly in January. Still, against the backdrop of continued dollar weakness, the euro saw gains against the dollar last week, surging by a total of more than 80 points. The pair is currently oscillating in a narrow range around 1.2160.
The British pound is hovering higher. Moving on to the British pound. Weakness in the U.S. dollar, leading vaccination progress in the U.K., coupled with the Governor of the Bank of England into once downplayed expectations of taking negative interest rates, the pound also surged more than 80 points against the dollar last week. However, Johnson warned that the new strain previously found in London could be more deadly and did not rule out further measures at the border, which limited the pound’s gains to some extent. Looking ahead, the movement of the US Dollar Index needs to be watched, and if the prospect of enhanced easing by the US government is further confirmed, non-US currencies, including the pound, will also rise further, with the next upside target for GBPUSD at the May 2018 high of 1.3772, which will challenge 1.3850 after a breakout.
Crude Oil retraced previous gains. Finally, a look at the oil market. The introduction of Biden’s massive stimulus plan once boosted market confidence in the economic recovery, causing oil prices to rise to a recent high of 53.8. However, as the epidemic accelerated in various countries, more Republicans questioned the Biden stimulus case, and EIA crude inventories recorded a big increase, oil prices subsequently accelerated back down and now hover around $52.3.
[Risk Warning
Gold: Gold prices broke through key resistance above the focus on 1872
Analysts at financial website FXSTREET pointed out that last week, gold prices closed above $1,850, recording the first gain in three weeks. Attention now turns to this week’s Federal Reserve interest rate resolution and the gold trading opportunities presented by U.S. economic data. Technical indicators show that gold has now broken above the strong resistance level of $1857 and the next step could be to focus on $1860-1862. If it breaks through the range, gold prices could rise to $1872.
Yen: Embargo measures hit economy US-Japan eyes 103 support
A private sector survey released on Friday showed that emergency measures taken in response to the resurgence of the new crown epidemic hit popularity, with factory activity in Japan falling into contraction in January and the service sector more pessimistic. Analysis points out that the dollar fell further against the yen in the short term and is expected to get good support around 103.
Crude oil: oil prices upward difficult but there is still good
The impact of increased preventive measures, oil prices after recording a strong start to the New Year, it is difficult to record highs this month, and recently did not stabilize the $ 53 mark. However, some analysts say that OPEC production cuts and the global economic rebound will push oil prices higher. In addition, Goldman Sachs said in a report that the Biden Administration‘s pre-existing measures, will constitute a positive for oil prices.
[Key Forecast].
Monday 16:45 Lagarde may maintain a cautious stance
First, come to focus on the upcoming speech of ECB President Lagarde. At last week’s press conference, she said that the epidemic still poses serious risks to the economy and that the short-term outlook faces downside risks, but not as pronounced; GDP is still expected to decline in the first quarter of this year. Current Inflation is still very low and will move higher in the coming months. The European Central Bank is monitoring the impact of inflation on the euro exchange rate, foreign exchange appreciation will cause a drag on inflation. Adequate monetary stimulus is important, ready to adjust all tools if necessary and maintain the flexibility of bond purchases, the current need for rapid deployment of the European Recovery Fund.
On balance, Lagarde will continue her cautious stance, stressing that the threat of the epidemic to the economy is still ongoing and will adjust all tools as necessary.
In addition, she may emphasize the impact of the exchange rate on inflation, but the ECB is unlikely to intervene in the exchange rate.
Thursday 03:00 Fed is likely to maintain stability
Thursday 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, it could lead to another spike in the discussion about the Fed will start tapering its bond purchases at the end of this year, thus triggering a spike in U.S. bond yields. But this is unlikely.
According to a Bloomberg survey, economists said the Fed could delay any changes to its bond-buying program until 2022, when it could begin tapering 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 interest rates would remain at that level until 2023.
Thursday 21:30 U.S. fourth-quarter GDP growth will shrink
Next, pay attention to the U.S. GDP data to be released in the fourth quarter. The data recorded 33.1% in the third quarter of last year. Some commentators say that the U.S. economy recorded the largest increase since government records began in 1947, as the government came up with more than $3 trillion worth of relief measures to boost consumer spending, but the severe wounds caused by the continued spread of the epidemic may take a year or more to heal. U.S. GDP growth will be significantly lower in the fourth quarter.
The market expects that the preliminary annualized quarterly value of U.S. real GDP in the fourth quarter will be 4.1%. If the published value is better than expected, it may be positive for the dollar; if not, it will be negative for the dollar.
It can be seen through expectations that the U.S. economy will grow at a slower pace in the fourth quarter, although the market has already digested this expectation. In addition, the annual rate of core PCE price index and initial jobless claims will also be released at the same time. If these groups of data pull back sharply, the dollar index may come under pressure.
Friday 21:30 U.S. December PCE data is expected to fall
Next, pay attention to the United States will be released PCE data. Last August, the U.S. PCE annual rate gradually decline, October and November to maintain at 1.4%. December, the data may fall further, finishing December data can be found, CPI data rebounded, but the U.S. retail sales fell further, non-farm payrolls fell 140,000.
Currently, the market expects the U.S. core PCE price index for December at an annual rate of 1.3%, if the published value is better than expected, or good for the dollar; if the published value is less than expected, or negative for the dollar.
Also pay attention to the monthly rate of PCE price index and monthly rate of personal spending released at the same time. You need to pay attention to the impact of this set of data on the dollar index.
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