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SquaredCommentary: 14th January 2021


14 January 2021

This morning US yields have been able to pull back to where they started the week, but the USD sell off is yet to follow.  It feels like the market is now more wary of the USD downtrend after getting burnt this week.  So we are seeing cautious trading.

Drivers


Given the pullback in US yields and more comforting words from FOMC members we expect the USD downtrend to be able to continue from here as those who were stopped out this week edge cautiously back into the trade.

The comments on US policy came from Brainard pushed back against tapering expectations for later this year saying that they are far away from their objectives and the US economy will need support for quite some time.  Harker said “We’re willing to overshoot inflation a little bit, not let it run out of control”. “But let it ride a   little above 2% and bring the labour markets back to health”.

Powell speaks later today at a university event but there is a Q&A where he is likely to be asked about this week’s tapering talk.  It is expected that Powell will push back on any tapering concerns which should allow the USD downtrend to resume, he is helped making this decision after the strong US auction yesterday.

US headline CPI was slightly stronger than expectations at 1.4% vs 1.3% exp.  CPI ex food and energy came in line at 1.6%. The numbers don’t cause any concern around runaway inflation and US yields have eased off, helped by more dovish Fed speak.

Biden will announce his spending plans in a speech this evening 7:15pm US time.  Funding for vaccines, aid to state and local governments, boosting direct payments to $2,000 from the $600 approved last month and further unemployment-insurance support are likely to be key components.

There has been a bit of a spike in USD in the Asia morning after this headline *BIDEN AIDES TELL CONGRESS ALLIES AID PLAN MAY BE ABOUT $2T:  Expectations were closer to $1tn. The US 10yr yield spiked from below 1.08% to above 1.13% on this.  We seem to be in a situation where more US fiscal stimulus is linked to higher USD, although this morning there may have   been an overreaction as the contents of this stimulus package have been well telegraphed.

The vaccine roll out is going to become a theme over the next few months.  The GBP has benefitted from the speed of the UKs programme despite hospitals currently being overwhelmed and the country   having post the deadliest day since the start of the pandemic.

Numbers to Watch


We expect GBP to continue to be bought on dips given the speed of the vaccine roll out.

Market Updates

Rony Nehme - Chief Market Analyst at SquaredFinancial


Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

#source

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