A combination of factors prompted some follow-through selling around USD/CAD.

The risk-on mood continued weighing on the safe-haven USD and exerted downward pressure.

Rallying crude oil prices underpinned the loonie and further contributed to the offered tone.

The USD/CAD pair remained depressed through the week and was last seen trading around the 1.2650 region, just above multi-week lows.

USDCAD D1 02 15 2021 1457

The pair edged lower on the first day of a new trading week and extended Friday's intraday fall of around 85-90 pips from the 1.2765 area. The downtick was sponsored by a combination of factors, though lacked any strong follow-through and the USD/CAD pair, so far, has managed to hold above multi-week lows support around the 1.2660 region.

The progress in the coronavirus vaccinations and hopes for a massive US fiscal stimulus plan has been fueling the optimism about a strong global economic recovery. This, in turn, remained supportive of the underlying bullish sentiment as depicted by the continuation of a rally in the equity markets  and dented the US dollar's safe-haven status.

A strong pickup in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair. Oil prices remained well supported by hopes that easing of lockdown restrictions will lift the global fuel demand and got an additional boost from rising fears of heightened tensions in the Middle East.

The US equity market is trading near all-time highs in the futures market overnight, as US President Trump’s signing of the stimulus bill removes the last notable political hurdle of the moment, although we are bearing down on important political risks just after the New Year in the shape of the Georgia Senate run-off races  The high market from last week for the S&P 500 is the 3,724 level.

SPX500 H8 12 28 2020 1242


Chinese regulators have demanded Ant to return to its ‘roots’ in payments closing down its businesses in insurance, consumer loans, and wealth management. Very little specifics have been provided and the deadline is specified as ‘as soon as possible’. China is clearly saying no to sprawling technology groups exercising their power across many businesses unified by personal data. Chinese technology companies are becoming a bigger and bigger part of the MSCI Emerging Markets Index and thus the Chinese crackdown could create an unexpected headwind for EM equities in 2021.

Alibaba Group Holding Ltd All Sessions 20201228 12.48

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USOil W1 02 08 2021 1411A strong week for the energy sector with crude oil trading higher by 8% while natural gas surged by 17% on the outlook for cold weather and an unusually big weekly reduction in stocks. Brent crude oil meanwhile is marching toward resistance at $60/b, the 61.8% retracement of the 2018 peak to the 2020 low, driven by a tightening market on expectations that OPEC+ is committed to supporting further price gains by restraining global supplies even as demand outlook improves as the vaccine-led recovery in global mobility increases.

XAGUSD D1 02 08 2021 1413

Silver’s go it alone rally, inspired by conspiracy theories and ill-informed traders in the group on Reddit, almost ended before it began. After failing to break above $30/oz, now a double top, the trade idea crumbled fast. But unfortunately not before having sucked 3,500 tons of new investments into exchange-traded funds, most of which are now under water.

Without strong support from gold, which instead drifted lower in response to a stronger dollar and rising bond yields, the rally was doomed to fail. Not least given the lack of fundamental reasons for the gold-silver ratio (Ticker: XAUXAG) moving to a seven-year low at this point in the cycle. 

While premiums for silver coins and small bars due to strong retail demand has been rising, thereby forcing unfortunate buyers into paying a huge and potentially loss-making premium above the prevailing spot, the LBMA in London reported that one billion ounces or 28,350 tons of silver traded in the London spot market on Monday.

Despite the recent setback, we maintain a bullish view on precious metals but given the current focus on a post-pandemic growth sprint, demand for safe havens has faded. 

Equity markets are off to a cautious start to the week despite a breakthrough in stimulus negotiations in Washington that agreement on a $900B stimulus package. Weighing a bit on sentiment elsewhere, Brexit talks are in a precarious state as the UK finds itself in literal quarantine on the discovery of a new Covid-19 virus strain.

A $900 billion stimulus package agreed by US Congress  but likely set to be signed off by Congress and President Donald Trump in coming days, the new stimulus package includes $15 billion in airline bailout money, extension of $300/week supplemental jobless benefits through March, $600 stimulus checks, but no funds for state- and local government aid. 

US 500 20201221 14.23

The US equity market sold off. The agreement on a large stimulus package over the weekend has not boosted sentiment notably as the last days of 2020 wind down this week and next. Areas of interesting in the S&P 500 index include the 3,700 area, which was near the prior top and seems to be a local pivot level.

Germany 30 20201221 14.23

The medium term setup is still clear that the pair had a nice orderly consolidation that tested just below the 38.2% retracement of the large rally wave from late last year (1.2050 ), which is the tactical support for remounting a charge on the highs for the cycle, and if we avoid an uglier deleveraging event here, the EURUSD higher trade is a less volatile way to trade for a resumption of the USD bear market, adding possibly EM and commodity dollar trades to the mix next week if those recovery smartly versus the USD into the close of the day and week today and into early next week. The key upside objective to take out is the 1.2200 area for the bulls.

Data wise, European figures were generally discouraging. German published the IFO Business Climate, which contracted to 90.1 in January, while the GFK Consumer Confidence Survey resulted at -15.6 in February, much worse than anticipated. Inflation in the country picked up modestly in January, as it printed at 1.0% YoY, according to preliminary estimates. Also, the economy grew 0.1% QoQ in the last quarter of the year, better than anticipated but way below the previous 8.5%. 

EURUSD D1 02 01 2021 1509

On the other hand, US data was mostly upbeat. Durable Goods Orders were the only down note, as they rose by a modest 0.2% in January. Q4 Gross Domestic Product resulted at 4.0%, beating expectations, while weekly unemployment claims continued shrinking, down to 875K in the week ended January 22.

Still, macroeconomic figures indicate shy economic progress. It seems that investors still believe that growth will return in the second half of the year.

The Federal Reserve announced its latest decision on monetary policy, and as widely estimated, they left rates and bond-buying programs unchanged. The central bank reiterated that the “path of the economy would depend significantly on the course of the virus, including progress on vaccinations,” while adding that the pace of the recovery in economic activity and employment has moderated in recent months. A generally dovish statement maintained markets in risk-off mode.



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Despite recent discussions, trade negotiations between Britain and the European Union remain deadlocked. With Britain set to officially leave the European Union on December 31, no formal trade deals have been made yet, with the leaders of both groups doubting whether a deal will be reached in the near future. The uncertainty created by the current situation saw markets across Europe react negatively over the last week, with investors looking to mitigate what could be risky investments.

A no-deal Brexit has become a much more distinct possibility in recent days, and negotiations are going down to the wire. There is still a huge amount of uncertainty, which means there is likely to be a market reaction whatever the outcome of negotiations. On Friday, Morgan Stanley said that it anticipates the FTSE 250 index will drop by 6% to 10% if the UK fails to agree a trade deal with the EU by the time the current transition deal concludes at the end of December, according to Reuters.

FTSE Mid 250 20201214 15.00

Last Monday saw Tesla reach new highs, with a 7.1% increase in stock value helping the company to become the sixth in history to pass the $600 billion market cap marker. A continued appetite for technology stocks fuelled the positive movement, with Tesla among just a handful of companies to reach the milestone.

Tesla Motors Inc All Sessions 20201214 15.02

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AUDJPY has long traded as an excellent risk proxy among G-10 pairs, traditionally from a carry perspective as Australia used to run one of the higher policy rates within G-10 and Japan has wallowed around close to zero for more than two decades. In more recent times, it is more about Australia as a proxy for the reflation trade and the strength in specific commodities, especially iron ore and the demand for Australia’s exports into the star performer since the pandemic breakout, China. So if we are set to see a second guessing of the risk-on and to some degree the reflation trade a risk correlated pair like AUDJPY could be in for a correction. The MACD has crossed over to the downside, suggesting that AUDJPY is at a pivotal point here after mounting a low-energy retracement of the recent sell-off, and generally not correlating well with the recent surge in other risk assets. The pair can push all the way back to 76.50 without beginning to really strain the up-trend.

AUD JPY 20210125 13.22

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USOil D1 12 07 2020 1319

Crude oil reached a nine-month high after the OPEC+ group of producers, following another nail-biting week of discussions, agreed on a compromise deal that will see production rise in stages over the coming months, starting with 500,000 barrels/day in January. With the expected vaccine-driven recovery in global fuel demand this deal will go a long way to ensure the price of oil remains supported until it can stand on its own feet.

The fact that the market rallied despite having priced in a postponement of the previously agreed 1.9 million barrels/day production increase was due to the flexibility of the deal. Meaning that production can be raised but also cut back should the recovery turn out to be slower than expected. Overall, analysts are now expecting that the road towards a balanced market has been shortened and on that basis expectations for higher crude oil and fuel prices into 2021 have been given a boost.

Adding to these supportive developments, a cut this year by the oil majors of more than $80 billion in longer-term capital spending will likely start to feed through to higher oil prices in 2022 and beyond. Unless this past year has changed dramatically the way global consumers will work and travel and thereby consume fuel going forward, only time will tell.  


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The US dollar continues to consolidate to the strong side as the Biden presidency approaches, one that was meant to weaken the US dollar further, given the slim Democratic control of Congress, but with the market constantly trying to operate on far future expectations, it may simply have gotten ahead of itself. This consolidation will become a bit more threatening for the USD bearish case if it continues.

The US dollar has managed to pull higher still since the weak close on Wall Street on Friday, with sentiment still a bit edgy ahead of this Wednesday’s Biden inauguration and despite a near total lack of unrest across the US at the weekend after warnings were loudly trumpeted from official quarters. Supposedly, we should also be concerned for protests on Inauguration Day itself, but the hopeful view for public order is that the Capitol Hill riots were a one-off, down to the presence of a gaggle of the most extreme Trump supporters and a mob mentality excited by a number of fiery speeches from Trump and others that goaded them on.

US Dollar Basket 20210118 15.48

Assuming an orderly transition, there are still a number of burning questions looming as Biden takes office, from whether and how quickly his administration can do anything about the vaccination effort and winning the race against hyper-contagious Covid strains, to the temperature in Congress (most importantly among a key handful of senators) on stimulus checks and other stimulus measuresI will also be keeping a close in eye in the first weeks of the new administration on signals from the Biden administration on China and on Russia, where sanctions are a looming threat after accusation that Russia is behind a recent cyber-attack of US government agencies and as the Democrats still claim Russian interference in the 2016 election. The outgoing Trump administration has also moved rather aggressively against China on a number of fronts and the market may be taken aback if the Biden administration doesn’t soften its stance against positions that the Republicans have now staked out on Chinese companies and listings on US exchanges, among other issues.


While we await all of this incoming information, the USD consolidation has reached reasonable, consolidation levels without yet breaking anything. And while full trend reversal levels remain some ways off, further USD strength in the near term begins to stress the USD bearish case. One thing that is most concerning for the risk of a more profound USD rally here is one of positioning.. This kind of divergence has marked a major market turn in the past.

US Dollar Basket 20201130 13.30

The US dollar is perched near the final support levels in a number of USD pairs ahead of Fed Chair testimony later this week and a busy economic calendar through the Friday payrolls and employment data. But global animal spirits are likely the more important drive in determining whether the US bear trend is set to deepen here.

Exchange rates are awfully quiet these days, but the directional move lower in the US dollar has finally extended enough in recent days to take the greenback to key levels that tell us whether a proper trend is unfolding here.
Most interesting scenario to challenge the weaker US dollar would be strong economic data that inspires higher US yields , range bound or lower yields with strong risk sentiment keep USD bears comfortable.


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