The US dollar index is close to making a fresh February low as investors eye riskier instruments. Light macros and holidays in the US and China might reduce the momentum early in the week. Therefore, risk sentiment will remain the core market drivers.
The dollar remains pressured close to 90.3 and might break below 90.25 to make a fresh February low. The prevailing market sentiment marks down the dollar. The appeal for safe-haven assets continues to drop as investors’ risk appetite remains supported by the expectation of a robust economic recovery. Vaccinations against the virus are going at a geometric rate. Hopes for more government spending together with the central banks keeping their policies easy is driving up the risk-on sentiment.
As a result, the US stock markets keep making fresh record highs. The S&P 500 ended last week bullish despite the mid-week’s mean reversion dip. High-beta currencies and commodities like the AUD, NZD, CAD and the energies have been the biggest gainers in the past week. On the other hand, safe-havens – USD, Yen, CHF and Gold fell sharply although the yellow metal had a significant bounce on Friday. Meanwhile, Bitcoin hit a fresh all-time high as more adoption emerged from the institutional angles. The flagship crypto is now just shy of the $50,000 mark.
The market will focus on risk drivers
Impressive Global Vaccination
The global vaccination against the pandemic has more than doubled in the last two weeks. According to ourworldindata, over 171 million doses have been administered globally. Vaccination has also reached Africa with over 1.4 million rolled out so far. In Europe, UK remains the most aggressive with over 16 million doses accounting for over 30% of the total rolled out in the zone.
The impressive figures have also come with little or no setbacks, thus supporting the current positive market mood. Most of the banks in their last monetary policy meetings based their forecasts on developments around covid. While they are optimistic about a quick economic recovery, covid was the big ‘BUT’.
With vaccine doses exceeding the number of reported cases by over 60 million and vaccine firms ready to even roll out more, investors have not been this optimistic since the pandemic broke out. The vaccine data has therefore become one of the major market indicators for currency traders. EURGBP is a very good example. The EUR remains pressured against the GBP as a result of the wide gap in vaccination between the UK and the rest of Europe. Policymakers are watching the vaccine progress closely and so should speculators.
The economic calendar is soft in the first half of this week. Bank holidays in the US and China will most likely dampen volatility on Monday. The Chinese holidays will continue till Wednesday. Meanwhile, traders should watch out for the Aussie policy meeting minutes on Tuesday although it’s expected to have a little or medium impact.
UK CPI, US CPI and Retail Sales data on Wednesday before Thursday’s Aussie employment data, US Philly Fed, Unemployment Claims and Crude Oil Inventories take the spotlight. Second half action will continue on Friday with the Eurozone PMIs and CAD Retail Sales.
The Week Ahead
Looking ahead this week, the risk-on sentiment is expected to be sustained for the larger part of the week. The dollar should fall further as there are no significantly strong fundamentals on sight to return the greenback above the January levels. The dollar weakness will most likely permeate the major fx. Also, cross betas (fx pairing of AUD, NZD, CAD and USD, CHF, JPY) might end up being the biggest movers. The stock markets should also make new highs together with the oil prices. Gold might struggle between returning to safe-haven weakness or rising on the weak dollar.
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