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Dollar Selling Takes Off as US Stocks Hit Records

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Dollar’s selloff finally took off overnight as US stocks were boosted further to new record highs on reflation trade and vaccine optimism. Selling is really broad based this time, as the greenback tumbled even against Yen and Swiss Franc. For now, New Zealand and Australian Dollars are the strongest ones but Canadian Dollar is lagging behind despite strong oil prices. With a light economic calendar this week, more downside in Dollar is in favor for the near term.

Technically, GBP/USD’s break of 1.3758 resistance confirms up trend resumption. EUR/USD also broke 1.2052 support turned resistance to indicate completion of of correction from 1.2348. Further rise would be seen back to 1.2188 resistance to solidify near term bullishness. Focuses now would be on 0.8925 resistance turned support in USD/CHF and 104.39 in support in USD/JPY. It’s unsure if two levels would be broken. But firm break there would be a real bearish signal for Dollar.

In Asia, currently, Nikkei is up 0.18%. Hong Kong HSI is up 0.39%. China Shanghai SSE is up 1.22%. Singapore Strait Times is up 0.17%. Japan 10-year JGB yield is down -0.0026 at 0.067. Overnight, DOW rose 0.76%. S&P 500 rose 0.74%. NASDAQ rose 0.95%. All were record highs. 10-year yield dropped -0.010 to 1.160.

DOW finally made new record high, targets 32932 next

DOW finally caught up with other major US indices and closed at record high overnight, up 0.76% at 31385.76. The solid support from 55 day EMA affirmed near term bullishness too. Further rise is now expected as long as 29856.30 support holds. Next target is 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93.

NASDAQ has been even stronger, considering that it’s kept comfortably above rising 55 day EMA all the way in the past few months. It’s on track to 61.8% projection of 6631.42 to 12074.06 from 10822.57 at 14186.12.

Fed Mester: Policy to be accommodative for a very long time

Cleveland Fed President Loretta Mester said yesterday monetary policy is “going to be accommodative for a very long time because the economy just needs it to get back on its feet.” Recovery is going to pick up momentum in the second half after vaccination. But until then, fiscal support on vaccine distribution and employment could help stabilize the economy. Also, “It’s going to take a while for the economy to get back to maximum employment,” she added.

Separately, Richmond Fed President Thomas Barkin said in a Financial Times interview that the economy still need support. “I still think there are a lot of people out of work who need a bridge to the other side, and I am supportive of what we can do to help them.” He expected some “short-term price volatility” but there are deflationary risks too. He’s keeping the focus on “medium-term” inflation expectations.

ECB Lagarde: Vaccine provides eagerly awaited light at the end of the tunnel

ECB President Christine Lagarde told the European Parliament yesterday that vaccine rollout across the Eurozone “provides the eagerly awaited light at the end of the tunnel… When containment measures are lifted and uncertainty recedes, we expect the recovery to be supported by favorable financing conditions, expansionary fiscal policies and a recovery in demand.”

Though, she also emphasized, “if we want to pave the way for a sustainable recovery, we need to maintain and strengthen the common European approach that proved so effective last year. The ECB is committed to doing its part, within its mandate.”

“Underlying price pressures are likely to remain subdued owing to weak demand, low wage pressures and the appreciation of the euro exchange rate,” Lagarde said. “Our pledge to preserve favorable financing conditions is crucial in the current environment.”

Australia NAB business confidence rose to 10, but conditions dropped to 7

Australia NAB business confidence rose from 5 to 10 in January. However, business conditions dropped from 16 to 7. Looking at some details, trading conditions dropped from 22 to 11. Profitability condition dropped from 13 to 9. Employment condition also dropped from 10 to 3.

“Business started the year on a more optimistic note, even as conditions eased from the strength we saw in December. Importantly, employment conditions remain in positive territory – so overall businesses are still expanding their workforce,” said Alan Oster, NAB Group Chief Economist. “The decline in conditions was broad-based across industries, except for a small improvement in recreation & personal services, which continues to make small gains as restrictions ease.”

Elsewhere

Japan labor cash earnings dropped -3.2% yoy in December versus expectation of -4.7% yoy. M2 rose 9.4% yoy in January versus expectation of 8.8% yoy. UK BRC like-for-like retail sales rose7.1% yoy in January. New Zealand inflation expectations rose 1.89% qoq in Q1. Looking ahead, Germany trade balance and Italy industrial production will be featured today.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7666; (P) 0.7690; (R1) 0.7729; More…

AUD/USD’s break of 0.7703 resistance suggests that correction from 0.7819 has completed at 0.7563. Intraday bias is back on the upside for retesting 0.7819. Break will resume larger up trend from 0.5506. Next near term target is 61.8% projection of 0.6991 to 0.7819 from 0.7563 at 0.8075. On the downside, break of 0.7650 minor support will delay the bullish case and extend the correction form 0.7819.

In the bigger picture, whole down trend from 1.1079 (2001 high) should have completed at 0.5506 (2020 low) already. Rise from 0.5506 could either be the start of a long term up trend, or a corrective rise. Reactions to 0.8135 key resistance will reveal which case it is. But in any case, medium term rally is expected to continue as long as 0.7413 resistance turned support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY Labor Cash Earnings Y/Y Dec -3.20% -4.70% -1.80%
23:50 JPY Money Supply M2+CD Y/Y Jan 9.40% 8.80% 9.20%
0:01 GBP BRC Like-For-Like Retail Sales Y/Y Jan 7.10% 4.80%
0:30 AUD NAB Business Confidence Jan 10 4
0:30 AUD NAB Business Conditions Jan 7 14
2:00 NZD RBNZ Inflation Expectations Q/Q Q1 1.89% 1.59%
7:00 EUR Germany Trade Balance(EUR) Dec 15.8B 16.4B
9:00 EUR Italy Industrial Output M/M Dec 2.10% -1.40%
11:00 USD NFIB Business Optimism Index Jan 98.7 95.9

Risk Appetite Sends Stocks and Oil Higher, Yen and Swiss Franc Weak

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