Equities fell during the Asian session on Friday while the dollar recovers a significant fraction of the post-Fed Thursday decline. Commodity FX are the biggest losers overnight in the Forex market. President-elect Biden unveiled his $1.9 trillion stimulus plan which includes $2,000 stimulus payments. The market will look forward to the US retail sales data as the week runs out.
Biden’s Stimulus Plan
The US President-elect’s new stimulus plan was below the $2 trillion expected, albeit marginally. However, the $2,000 stimulus payment plan was better than what the Republicans proposed. However, the market still fell. The S&P500 dropped over 29 points during the Asian session. Meanwhile, Biden will announce his recovery plan proper in February. However, he has cautioned that everyone will have to pay their fair share of taxes. The possibility of a tax hike dragged the stock market mildly down.
Fed Chair Powell put pressure on the Dollar
Powell in a speech on Thursday played down any near-term idea of hiking the interest rate or exiting its current QE policy despite the quicker than expected economic recovery. According to him, the bank would rather focus on building the muscle of the financial system and getting the labor market back on track. Despite his optimism, the market remains preoccupied with inflation concerns amid the continuous printing of the dollar and prolonged zero interest rates. The dollar fell sharply across the board on Thursday but recovered nearly 50% of the decline during the Asian session. However, if inflation worries turn bigger, the Fed will find itself under pressure. The market understands this, thus the stock market has dropped since his speech. Investors will keep their eyes on the coming inflation data ahead of the next FOMC meeting while keeping the two possibilities open.
US Covid cases increased by 225,000 (higher than previous) and with 5,096 deaths. Rising cases are also recorded in some parts of Europe. The UK remains on lockdown but reports said that vaccination will be stepped up to 500k a day from next week. Meanwhile, the UK PM said that over 3 million doses have been administered across the country. Another report said that the German Chancellor is planning on toughening lockdown. So far, vaccine companies are still short of a supply that can meet demand. However, with time, it’s believed production would meet up. The market is currently quiet on Covid developments.
The political crisis in Italy has dragged the Euro down in recent days. Meanwhile, according to a report, the country’s PM Conte will discuss this with the lower house before a confidence vote. However, the date was not mentioned in the report.
The dollar is rejecting further decline early in the London session. DXY jumped to 90.4 with 90.58 and 90.72 acting as the nearest intraday resistance levels. A surge above these levels would see the world’s reserved currency jump toward 91. However, to the downside, the bears will have to break below 90.02 and 89.9 Thursday’s support levels toward the 89.15 low.
Meanwhile, EURUSD is back pressurized at prices slightly above 1.211 low. A lot will depend on the performance of the dollar and the political development in Italy. Traders’ eyes will be on the 1.211 support. If breached, the bears could drag the pair to 1.205. On the other hand, a bullish return above 1.2180 could fasten the bullish correction to the 1.2215-1.2222 resistance zone or above.
After over 250 pips resurgence this week, GBPUSD bull was rejected at 1.37 and has dropped over 50 pips from the critical level. 1.3712 and 1.361 are the main intraday resistance and support levels respectively for intraday traders. A break above 1.3712 will open further rallies to 1.375. However, a further dip should be limited above 1.355.
The commodity currencies are declining fast. AUDUSD has dropped over 55 pips on Friday and now heading to test 0.772 while NZDUSD is breaking below a bullish corrective channel. USDCAD bounces off the 1.263 support and now off to 1.27. The last day of the week is opening on risk-off. However, we will have to see how the New York session responds.
Gold is banking on a weaker dollar to stay afloat. The commodity has been quiet since Thursday. However, there are more opening to the upside toward 1850 and 1880. The bears will have to break below 1828 to drag the commodity lower. Silver has moved slightly different – under pressure below 25.4. 25.9 and 25 are the respective resistance and support levels to watch out for on the commodity. Meanwhile, the oil market is shedding profit as risk-off persists. Brent and WTI have both shed $1 between Friday Asian opening hours and a few hours after the London opening.
Cryptos are back on the front foot as it’s now evident that the Fed and government won’t stop printing money. Bitcoin rallied back to $40,000 on Thursday but has dropped over $2,000 on Friday. However, the premier digital currency is not far from making another all-time high. The altcoins have also enjoyed significant recoveries from the 3-days decline between 8-11 January.
Coming ahead today – macroeconomics
The market will look forward to the US retail sales data on Friday while keeping in check of the current primary risk drivers.
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