[Market Review].
The US dollar index hovered low. This week, the US dollar index mainly fluctuated in the range of 90.8-91.8. The recently released economic data still performed well. Initial jobless claims were recorded at 547,000, lower than the previous value and expectations. Although the U.S. economic recovery is steadily proceeding and the CBC’s reduction in QE size rang the alarm bell to slow down easing, the current economic situation is still not enough to push the Fed to change the caliber of easing. As a result, the trend of the U.S. dollar index this week remains quite subdued.
However, yesterday, it was revealed that President Joe Biden will propose to raise the marginal income tax rate for individuals earning more than $1 million, from 37% to 39.6%, and nearly double the capital gains tax rate to 39.6%. After the news broke, the market’s safe-haven buying of the U.S. dollar contracted the U.S. index’s losses for the week. In addition to the tax rate, news about the Biden-based construction plan is that the U.S. Senate Republicans have proposed an infrastructure plan of $568 billion in size. This is smaller than the previously rumored $650 billion. We can keep an eye on that event as it develops.
Gold shocks higher. While the dollar weakened, gold saw a rally. Gold climbed from near $1,770 at the beginning of the week to $1,797.77 per ounce before retreating a bit and falling below $1,790. It seems that gold prices did not break through the important resistance level of $1,800 in the end.
Silver rose and then fell. Next, let’s focus on silver. Earlier this week, silver had been oscillating sideways around $26, then followed gold’s rally, rising to $26.6 at one point, though it then gave back most of its gains and is now running near $26.1.
The euro oscillated higher. In non-U.S. currencies, the euro rose more than 40 points against the dollar this week. The weakness of the dollar has supported the euro. However, the ECB did not release any new information and the euro thus lacked upside momentum. Last night, the ECB announced its latest interest rate resolution, keeping the three key interest rates unchanged, in line with market expectations, and will be based on the asset purchase program to purchase 20 billion euros per month, in line with the previous.
The British pound rose and then fell. Then look at the pound. The British pound rose and then fell. GBPUSD previously rose to 1.4 above, but then did not stabilize the rally, and now has returned to 1.38 above.
U.S. oil fell to near $61. Finally, take a look at the oil market. U.S. oil has shaken lower this week and is now running near $61.
[Risk Warning
Dollar: Short-term dollar expected to continue to fall but unlikely to plunge
Westpac expects the dollar index to fall below 90 in the near term as the pace of vaccinations and reopening picks up and market pessimism about Europe eases, but is unlikely to fall below the 89.20-93.40 range. The dollar is unlikely to fall sharply as a series of major macro risk events remain to be resolved. events such as the German federal elections in September, President Biden’s long-term economic stimulus plan, the prospect of the Fed tapering its bond purchases, European countries’ recovery fund plans, and the eurozone’s joint bond issue will influence the dollar index’s movement.
Japanese Yen: If it falls below the key support U.S. Japanese may fall to 106.80
TD Securities points out that if there is no major catalytic event in the short term for the USDJPY, technical and position conditions could be key to the trend. If the pair falls below the key support level of 107.80-107 area, it will fall further to around 106.80.
CAD: Canadian dollar may come under pressure in the near term but may be supported in the long term
Influenced by the Bank of Canada’s interest rate resolution, the Canadian dollar saw a sharp rise. However, the Dutch International Group said that the Canadian dollar may find it difficult to shake off the recent weak momentum, as the new coronavirus outbreak in Canada is forcing some countries to reassess domestic growth expectations. In addition, the poor performance of oil prices may extend into the second half of the week.
Assuming the current restrictions are effective in containing the spread of the outbreak in Canada, oil prices will remain supportive for the remainder of the year and the Canadian dollar may not see any meaningful near-term dampening factors. The Canadian dollar is expected to strengthen further as interest rate conditions improve in anticipation of a 2022 rate hike and further tapering of quantitative easing this year. According to bearish dollar forecasts, the USD-CAD will hit 1.20 by the end of 2021 and could fall below that level.
[Key Outlook].
Saturday 01:00 U.S. oil drilling total for the week to April 23: Fears of continued increase
The total number of oil drilling wells released last week was 344, increasing for the fifth consecutive week. This indicates that the U.S. economy is recovering, increasing the expectations of extractors for economic recovery.
Currently, the market expects the total number of oil drilling in the United States to April 23, the week of 349, if the published value is greater than expected, or negative oil prices; conversely, will be positive oil prices.
Many factors are currently affecting the trend of oil prices. On the positive side, Libya said that the country’s oil production has dropped to about 1 million barrels per day in recent days, and the production may drop further because of budget problems. In addition, U.S. initial claims are lower and gasoline demand in the U.S. is improving. This is all expected to boost oil prices. Also keep an eye on Biden’s capital gains tax proposal.
On the bearish side, the Japanese government will declare a state of emergency for coronavirus in Tokyo, Osaka, Kyoto and Hyogo from April 25 to May 11. Not only Japan, the outbreak in India is also very serious. For the first time, the number of new daily coronary cases in that country exceeded 300,000. Then there is the fact that the U.S. and other countries have raised their targets for cutting greenhouse gas emissions. In the long run, oil demand is expected to take a hit as more countries adopt policies to combat climate change.
Overall, in the short term, oil prices are boosted by lower Libyan production and Biden’s capital tax policy, but in the medium term, the severity of the epidemic remains the main factor limiting oil price gains. The state of emergency in Japan again and the severe epidemic in India will limit the upside of oil prices for a period of time; and the policy of cutting carbon emissions in various countries will also depress oil prices to a certain extent.
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