[Market Review].
The U.S. Dollar Index surged higher and retreated. The dollar index retreated from an intraday high of 91.41, down 0.27% on the day. 10-year U.S. bond yields oscillated back and forth around 1.4%. U.S. Treasuries stabilized after the recent spike in yields, with investors favoring and resource-related currencies. In addition, Mitsubishi UFJ foreign exchange analysts pointed out that continued accommodative monetary and fiscal policies will continue to weigh on the dollar. For now, we need to keep an eye on the progress of the stimulus bill. On Saturday, the U.S. House of Representatives narrowly passed the Democratic stimulus plan, which included raising the minimum wage to $15 per hour, but the proposal did not receive Republican support. In addition, two other dovish Democrats also voted against the minimum hourly wage proposal. In order to get the stimulus plan in place as soon as possible, the Democrats had to abandon the $15 hourly minimum wage proposal. With the discussion on the minimum wage over, the Senate could begin considering the stimulus plan as soon as Wednesday, with a final vote as soon as late Thursday, and awaiting full party support from Democrats and sign-off from members of Congress for approval, which will finally go to Biden.
Gold rallied $30. Next, let’s focus on gold. Gold prices fell and then rose during the day, hitting a low of $1,707.19 in Asian trading, but then shocked back up, pulling up $30 from the day’s lows to finally close up 0.79% at $1,738.02 an ounce. The dollar and U.S. bond yields retreated, boosting market demand for safe-haven gold.
Silver fell before rising. Similarly, silver fell before rising, hitting a low of $25.82 per ounce, but is now back near $26.60.
The euro bottomed out. In non-U.S. currencies, the euro rose more than 40 points against the dollar during the day thanks to the dollar’s retreat. Recent discussions about bond yields have been unusually hot. Top ECB officials issued a warning about rising bond yields. The president of the Bank of France said that the recent rise in some bond yields was unfounded and that the ECB needed to respond using the flexibility of its bond-buying program. In addition, the ECB vice president also said that the ECB can respond flexibly to any unwanted rise in bond yields. In contrast, the Fed does not seem to be as worried, and it seems that the Fed and the ECB have divergent views on rising bond yields.
The British pound rose slightly. The euro bottomed out and so did the pound. The British pound rose nearly 20 points against the dollar during the day. A report released by the Dutch International Group said that the momentum of the pound has weakened over the past few days, but increasingly encouraging data on vaccinations and the U.K. Epidemic should continue to reinforce the vision of an accelerating economic recovery, so that the pound will not fall too much.
Oil prices are sluggish. Finally, a look at the oil market. Oil prices were sluggish during the day, closing down 1.26% at $59.44 a barrel by the end of the day, with a big increase in API inventories and a possible increase in OPEC+ production weighing on oil prices. Data showed that U.S. API Crude Oil inventories recorded an increase of 7.356 million barrels, much higher than the expected decrease of 1.85 million barrels. In addition, OPEC+ will meet on Thursday, where it may discuss increasing production by up to 1.5 million barrels per day. Some analysts say the market is increasingly concerned about the impact of future changes in crude supply on oil prices. the OPEC+ meeting is the most important factor, and the organization is likely to continue to gradually roll back its record production cuts in the coming months. Meanwhile, U.S. crude oil production could also rebound quickly as production disruptions from February’s extremely cold winter weather conditions gradually return, but longer-term production will take some Time to respond to rising oil prices.
[Risk Warning
Euro: U.S. continues to maintain easing Euro is expected to move higher this year
HSBC said that the eurozone current account surplus improved slightly at the end of 2020. This may help explain the rise in the euro at the end of last year. Looking ahead, the euro is still likely to move higher against the dollar in 2021, as U.S. monetary conditions remain accommodative and risk appetite will remain more supportive. If U.S. short-term interest rates start to see more volatility, or if long-term yield spreads become wider, the dollar could continue to rally.
GBP: Good economic expectations, GBPUSD expected to hit 1.43
Canadian Imperial Bank of Commerce raised its forecast for the pound against the U.S. dollar, expecting it to touch 1.43 and 1.46 by the second and third quarters of this year, respectively. the bank expects a vaccine-induced, consumer-led recovery from the second quarter that removes the need for negative interest rate risk, so the prospect of rising Inflation and accelerating growth supports a stronger trade-weighted pound performance.
British pound: the U.S. and Japan are expected to continue to rise, focusing on the resistance level of 107
Technical analysis by UOB said that the short term USDJPY is still expected to rise further. The pair is currently trading above 106, and the market may gradually move up and break through the main resistance level of 107, but is unlikely to stand firm above that mark. If the USDJPY continues to rise, it could focus on 107.3. On the downside, a break below 106.45 would indicate that the current upside pressure has eased.
[Key Forecast].
21:15 ADP employment figures may pick up
The first thing to focus on is that the U.S. will release the ADP employment numbers for February. in January, the data increased by 174,000. Yahoo Finance said that despite the pressure on hiring caused by the new crown epidemic pandemic and winter weather, ADP data showed that the U.S. private sector added far more jobs than expected in January and resumed growth. This marked a significant reversal following a sharp decline in service sector employment.
By the end of the month, some analysts predict that U.S. ADP employment may register 177,000 in February. If the data is less than expected, the dollar index may come under pressure to the downside; if it is better than expected, then the dollar index may strengthen.
It can be seen that the market expects the US labor market to slowly turn better, which may be a signal that the US economy is warming up.
23:30 EIA crude oil inventories may increase
Next, take a look at EIA crude oil inventories, which were released last week with an increase of 1.258 million barrels. The financial blog Zero Hedge commented that US crude oil production fell by an average of 1.1 million barrels per day compared to the previous week, well below the 4 million barrel drop in production reported in the media at the peak of the storm, with most of the supply expected to recover one by one.
This morning, API crude oil inventories have been released, up 7.356 million barrels. Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories are likely to increase as well.
Even so, it is still important to note that the current market expects the EIA crude oil inventory to decrease by 1.85 million barrels in the week of February 26. If the published data exceeds expectations, oil prices may dip in the short term; if the inventory data is less than expected, oil prices are expected to strengthen.
It is also important to note that OPEC+ will meet and the market is concerned that the organization may increase crude oil supply. In addition, Saudi Arabia may stop cutting production by an additional 1 million barrels per day in April, but the country is still discussing whether to continue extending additional cuts.
Thursday 04:15 Orr may maintain negative interest rate expectations
Finally, keep an eye on the upcoming speech by New Zealand Fed President Orr. Late last month, the Fed left its benchmark interest rate unchanged at 0.25% and continued to implement a massive asset purchase program of up to $100 billion in size. The future economic outlook remains highly uncertain, and is prepared to lower interest rates to provide additional stimulus if needed. Orr also said that continued monetary policy stimulus is necessary until global economic conditions improve.
Based on this, we think Orr may emphasize that the economy still faces great uncertainty and will lower interest rates to provide further stimulus if needed.
Based on recent comments from the New Zealand Fed and Orr, he is likely to maintain a dovish stance, emphasizing the need for a continuation of monetary policy. Earlier, because bond yields soared, the Australian Federal Reserve increased the size of bond purchases. New Zealand Fed officials also said they are closely monitoring signals of financial market dysfunction and have the ability to increase weekly bond purchases. So also need to pay attention to Orr’s remarks on bond purchases.
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