Market Update: Risk appetite is back overnight as dollar falls

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Market Update: Risk appetite is back overnight as dollar falls under pressure

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Safe-haven instruments are pressured overnight and have extended that into the London session as risk appetite returned. 

On Monday, the market was quiet following the closure of banks in the US to observe the MLK day. Last week, the market turned down risks and thus supported rallies for safe-havens like the Dollar, Yen and Swissy while the high-beta currencies Aussie, Kiwi and Loonie extended losses but found technical supports to lean on. The Asian session on Tuesday has now ushered in a fresh risk appetite thus leading to significant rebounds for the riskier assets from the bearish zones.

Post-Asian/pre-London market recap

The dollar index is back retesting 90.5 after it almost touched 91 on Monday. S&P 500 jumped above 3800 which is very significant for more bullish tractions. While the European and Japanese markets took part in the bullish moves, some Chinese stock indices fell sharply. Meanwhile, Gold recovers to 1840 defying its safe-haven status again, while the oil market jumped above last week’s bottom.

In the FX market, safe-haven JPY and CHF fell sharply with the former ending the session as the worst performer among the majors. Riskier FXs AUD, NZD and CAD took the other direction with AUD ending as the best performer. Risk-on cross pairs like CADJPY, AUDJPY and NZDJPY were some of the most volatile overnight.

With all of these, it seems the market’s upbeat mood is back. Although we might see minor corrections against the current flow across the board, early in the London market, the current direction should be maintained for some time.

US Politics and change of power

Today is President Trump’s last day in the White House. All attention is now on Biden and the January 20 transition day. Meanwhile, his Treasury Secretary nominee Janet Yellen will testify before the Congress. She is expected to call for more spending to accelerate economic recovery. Speeches, remarks and comments from Biden, his cabinet members and aides will be scrutinized from now on. Market participants will want to get more clues concerning the fiscal stimulus, tax policies, approach to Covid, international relations and whether there is an intention to lift travel restrictions on Europe as reports suggested President Trump had planned for January 26, among others.

COVID and Vaccines

Reported cases and deaths are on the rise again, especially in the US. UK remains on lockdown with tier 3 and 4 likely to remain till April and May as the infection level is still high. Vaccination in the country will speed up by almost 2 million doses per dar according to reports. Meanwhile, Germany is expected to toughen restrictions and extend lockdowns past January.

So far, about 40.4 million doses of vaccines have been rolled out as of Monday, January 18 with other 95.5 million combined reported cases globally. Again, market attention on Covid has been weathered down for some time now. However, investors’ eyes are still on the situation as the market might react to extreme outcomes – positive or negative.

Macro-economics

Light macros on the calendar on Tuesday as we had on Monday. Meanwhile, Yellen is expected to paint a risk-on picture during her confirmation hearing today. The market will also look forward to the BoC and BoE tomorrow together with Biden’s inauguration speech.

Market forecast – what next?

Risk appetite is expected to get intensified although we might see another slow-down day. The inauguration tomorrow might be the best trigger for the next market direction. In the FX market AUD, NZD and CAD might climb higher and record significant gains over risk-off FX CHF, JPY and USD. We might therefore see gradual and continuous rallies on risk-on/risk-off currency pairs.

The dollar is expected to drop further if the current DXY dip extends below 90.4. Otherwise, traders should watch for support at 90.5. EURUSD will confirm a bullish resurgence above 1.2150 with support at 1.205. GBPUSD is set to climb toward 1.38 if the 1.352 support holds. AUDUSD and NZDUSD are expected to push toward 0.79 and 0.74 respectively while USDCAD could drop to retest the 1.262 low. USDJPY’s end of bearish correction will be confirmed if a breach above 104.2 happens. My technical outlook suggests a bullish target at 105 and above especially if the Yen continues its recent woe.

For commodities, oil prices are expected to climb higher with WTI and Brent eyeing $55 and $58 respectively. Gold could resume its safe-haven position with risk-on pressure likey to drag the yellow metal to 1830.

Disclaimer: This communication is for informational purposes only and should not be viewed as any form of recommendation as to a particular course of action or as investment advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This communication has been prepared based upon information, including market prices, data, and other information, believed to be reliable; however, TigerWit does not warrant its completeness or accuracy. Trading CFDs involve risk and can result in loss of capital.

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