Wednesday January 27th, 2021

The US$ edges stronger as risk sentiment eases ahead of the FOMC and concerns mount over US stimulus. Treasury yields dipped overnight ahead of the FOMC meeting and amid concerns of the eventual size of the and timing for further US stimulus. The FOMC will wrap up its meeting today and we could see a cautious shift to a more neutral stance by the FED. Global coronavirus cases surpass 100mio, with new variants of the virus and vaccine shortages, a Reuters poll highlights a high risk of the virus derailing the world economy in 2021. The US$ index is down 7.7% over a 1-year period, but we have seen a 0.65% rebound in US$ strength in January as risk concerns grow. CNY is down 0.07%, while Asian currencies are down 0.15% on average vs U$S. Trading currencies came under selling pressure vs US$ with JPY down 0.25%, NZD down 0.4%, AUD down 0.6%, NOK down 0.85% while MXN and ZAR fell just over 1%. Focus remains on the outcome of the FOMC meeting, as well US Durable Goods and Nondefense Capital Goods Orders ex-Aircraft data will provide intraday direction.

Oil prices remain firm after US crude inventories fell and China posts its lowest daily rise in coronavirus cases in over 2-weeks. US President Biden is expected to announce today new executive actions aimed at combating climate change that will pause new oil and gas leases on federal land. C$ continues to stall within 1.2685-1.2785 range, as the loonie balancing firm oil prices vs a shift to risk-off sentiment and a stronger US$. With No Canadian data out, markets will remain focused on FOMC comments and oil prices for direction. Our bias is that we could see C$ test weaker towards the mid 1.28 level. Support holds 1.2685, with resistance at 1.2780, if breached look for 1.2835.

Euro dips towards 1.21 after ECB’s cautious currency message. ECB member Knot said that Euro strength would take prominence if it threatens inflation outlook. He went on to say “we have the tools to act on Euro strength” – “Economic outlook depends on vaccine rollout” and that “economic impact of the 2nd wave of lockdowns seems less severe than the first”. Italy continues to struggle with its political issues as PM Conte is trying to form a new government after tending his resignation on Tuesday. Focus shifts to the FOMC comments today. Support holds at 1.2085 with resistance at 1.2180.

GBP stalls near multi-year highs amid the UK’s robust vaccine strategy. The UK vaccinations has reached almost 11% of its population with targets of reaching all 50+ Britons by March. Despite the success of the vaccination efforts, it’s unclear when lockdown measures will be eased. Newspaper reports raised concerns that the EU with impose strict controls of Pfizer vaccine on the UK. With no UK economic releases, markets will focus on the FOMC Fed Chair comments for intraday direction. Support rises to 1.3675 with resistance now at 1.3792 (April 2018).