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Jan 20 - 04:55 PM

EUR/USD - COMMENT-US Recap: Risk Rally Lets EUR/USD Down

By Randolph Donney  —  Jan 20 - 02:29 PM

The dollar rose against the euro but was mixed otherwise as risk markets rallied on U.S. Inauguration Day on expectations that the new administration would usher in more fiscal relief for the coronavirus-stricken economy.

A follow-on study showing the Pfizer and BioNTech COVID vaccine is likely to protect against the new more infectious virus variants nL1N2JV0Q3 injected some optimism into the pandemic containment outlook.

stocks hit record highs as Joe Biden was sworn in as president, a day after his Treasury Secretary nominee, Janet Yellen, made the case to lawmakers to be ambitious with further fiscal stimulus nL1N2JU1MJ.

Any additional spending would combine with Fed Chair Jerome Powell's intention to keep funding costs low for the foreseeable future, even if inflation rises nU5N2EU027.

EUR/USD fell back after running into sellers by the falling 10-day moving average nL1N2JV1HM and Friday's pivotal high.
But prices remain above the 55-DMA that caught the current correction low scored Monday, last at 1.2066.

Sterling once again succumbed to selling pressure after a brief foray and marginal new 2-1/2-year trend high beyond 1.3700.

The UK's quicker start than the EU on vaccine approval and distribution and sterling's positive correlation to global risk gauges such as the S&P 500 has limited cable pullbacks and attracted buyers at successively higher levels, first near the 55-DMA in December, and nearer to the 30-DMA since then, last at 1.3531.

But Wednesday's sharp intraday retreat, along with the EUR/USD's losses, came despite surging stocks and other risk-on flows into high-beta currencies, a pending correlation shift that bares watching.

USD/JPY broke down out of inside day and week bases ahead of the London close, piercing key support at 103.50.
The pair reverted to its negative correlation to rising S&Ps as demand for the haven dollar fell faster than for the haven yen.

USD/JPY was subdued by further slippage in 10-year TIPS yields.
And ahead of Thursday's BOJ meeting.

A USD/JPY close below the 50% Fibo of January's rebound at 103.50 would suggest that the pandemic downtrend from late March remains alive and well nL1N2JV1PW.

High-beta and commodity-linked currencies gained ground, with USD/CAD eking out a new nearly three-year low after the BOC meeting, even with policy on hold nL1N2JV1HE.

Neither the BOJ nor the ECB meeting on Thursday is expected to break fresh policy ground, even as both look for ways to improve yield control programs in subsequent meetings.
Weekly jobless claims will also draw attention after last week's disturbing 181k increase to 965,000 and 199,000 surge in continuing claims to 5.271 mln nL1N2JO2R6.

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Refinitiv IFR Research/Market Commentary


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