Wednesday January 20th, 2021

The US$ holds steady after two days of weakness ahead of today’s inauguration. The US Treasury Secretary nominee Janet Yellen’s opening statement before the senate gave markets confidence and boosted risk-on sentiment. The key points Yellen raised were a need to act now with more stimulus but to expect down-the-line higher taxes, fiscal sanity, still tough on China and US$ direction will be dictated by market forces not the government. Post inauguration then President Biden is expected to sign 15 executive orders which is expected to include rejoining the Paris climate agreement and cancelling the Keystone XL pipeline agreement. Equity and oil markets are overall stronger, while currency markets are mixed. CNY rallied 0.17%, while Asian currencies are up 0.1% on average vs US$. Trading currencies saw MXN & NOK flat, JPY up 0.1%, NZD & ZAR up 0.2%, AUD up 0.35% vs US$. No key US data today, the markets will focus on a peaceful inauguration and the new President’s actions on his first day.

Oil prices rise with Brent Crude +US$56bp, boosted by US stimulus hopes after US Treasury Secretary nominee Yellen speech urging lawmakers to “act big” on pandemic relief spending. C$ strengthened from the rising risk-on sentiment and strengthening oil prices but focus remains on the longer-term implications of the Keystone XL pipeline agreement cancellation. Today the BoC Governor is expected to be looking beyond early 2021 and will keep key interest rates and asset purchase programs unchanged. Also, out today key CPI results which is expected to see YoY Dec CPI to drop from 1.5%to 1.2%. Support drops 1.2676, if breached look for 1.2621 (Jan14th) with resistance at 1.2765.

Euro holds steady near 1.2100 adopting a cautious tone with covid concerns offsetting US stimulus optimism. Optimism that a Biden presidency will be able to pass a US$1.9T stimulus bill has boosted risk-on sentiment and weakened the US$. Italy’s PM narrowly survives a confidence crunch as the country grapples with surging covid cases and economic crises. Across the EU, Spanish coronavirus cases continue to surge taking it’s hospitals to the brink, while Germany extends lockdown measures amid concerns over new variants in Europe. Focus is on a safe inauguration day in the US, with bias of Euro edging stronger supported by risk-on sentiment. Support rises to 1.2065 with while resistance extends to 1.2178.

GBP extends its gains testing a new 2021 high amid risk-on sentiment and vaccine hopes. US Treasury Secretary nominee comments helped propel market confidence with US stimulus hopes and put pressure on the US$. The UK’s aggressive vaccination campaign and hopes for a reduction in lockdown measures by March alongside a weaker US$ his helping the pound to gather momentum. UK CPI, Retail Sales and PPI data all exceeded expectations and helped provide confidence to investors. Focus will be on a peaceful inauguration and BoE Governor Bailey speech with a bias of further GBP strength. Support rises to 1.3585 with resistance at 1.3721 (2021 peak), if breached look for 1.3792 (April 2018).