Wednesday January 13th, 2021

US$ edges higher on safe haven buying, equity markets dip, while oil prices extend gains. US yields ease after the US Treasury auction was met with solid demand on Tuesday and two Fed officials pushed back on the possibility of tapering bond purchases anytime soon. Hanging over the markets is the prospect of a 2nd impeachment for President Trump after VP Pence rejected using the 25th Amendment to oust President Trump. Markets to a large extent are shrugging the impeachment news, but growing security concerns around Bidens inauguration may have a bigger impact on market sentiment. CNY drops 0.13% while Asian currencies are mixed with IDR, INR and MYR strengthened while other Asian currencies drop 0.2% on average. Trading currencies came under renewed selling pressure with JPY down 0.16%, MXN & ZAR down 0.25%, while AUD, NOK and NZD are all down 0.4% vs US$. Focus remains on US impeachment process, Fed speech’s and US CPI results for intraday direction.

Oil prices rise for a 7th-session after China’s President Xi’s upbeat assessment of the Chinese economy which is positive for oil demand as China is the biggest oil importer.  In other news crude stocks fell greater than expected helping Brent Crude test towards US$ 57pb. C$ strengthened yesterday on rallying oil prices, but the opposing strong US$ is limiting the C$ gains. Ontario declared its 2nd state of emergency and issued a stay-at-home order for the next 28-days. Markets see an increased chance of the BoC cutting interest rates closer to zero in response to tightening economic conditions, which could see C$ come under selling pressure. Support lowers to 1.2665 with resistance at 1.2798, and again if breached look for an extension towards 1.2860.

Euro continues to edge lower amid a strengthening US$.  European equity markets find support and Euro tic’s lower after the ECB de Galhau said the central bank will keep an easy monetary stance for a as long as needed. Euro has room to weaken further as the coronavirus continues to rage, Spain’s virus cases is accelerating, German is on course extend lockdowns until April and Italy’s political coalition is fracturing. US$ will likely continue to drive Euro, intraday US CPI & Fed comments will provide direction. Support lowers to 1.2080 and resistance drops to 1.2205.

GBP extends gains to a 7-week high as US yields ease and BoE stance on interest rates. The easing of US yields took some shine off the US$ and removing some of the headwinds against the GBP. The primary driver for the pound came from BoE Governor’s comments stating that negative interest rates are “controversial”, basically removing the prospect of sub-zero rates for the UK. Coronavirus levels within the UK remains a critical concern for markets, but the UK’s vaccination strategy is providing investors confidence. Brexit negotiations begin today for the service sector which includes finance, a key sector for the UK and any acrimony will likely be bearish for GBP. Support rises to 1.3600, with resistance 1.3705 (2021 peak).