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SquaredCommentary: 4th February 2021


4 February 2021

We expect to be "just" risk on today as Mario Draghi helps reduce political uncertainty across Europe and the more Dovish line from the US Fed is expected to restart the USD lower trend, certainly in the medium term.

Drivers


For the first time in many quarters the markets appeared to be driven by fundamental and company news rather than Covid figures or vaccine roll-outs. Eurozone Services PMI’s were better than expected yesterday, particularly Italy at 44.7 vs 39.5 exp. Eurozone CPI also above expectations with CPI Core YoY at 1.4% vs 0.9% exp.

Super Mario Draghi agreed to try to form a government in Italy. The market has already reacted positively to the familiar and EU friendly face. If successful in forming a coalition government this will significantly reduce EU political risk.

US ISM Services were strong yesterday at 58.7 with the employment sub index particularly strong. ADP also came in strong suggesting NFP tomorrow could be a good number. BoE today. Markets have priced out the chance of negative rates this year so any rhetoric around this will be focused on.

EURUSD hovers just above 1.2004 after the better US data. Seems like a good chance to buy the dip as positioning is a lot cleaner since breaking 1.2050. Super Mario could significantly reduce EU political risk and better Eurozone services PMI’s and CPI yesterday are encouraging.  Also, importantly this week FOMC members including Bostic have shifted to Powell’s more dovish line so expect that the USD trend lower can resume now that positioning has been reduced. This particularly goes for growth currencies against USD.

Numbers to Watch


AUD was given good reason to go lower with the extension of QE from the RBA, dovish Lowe and lower Iron Ore but it was unable to close below the 50dayMA at 0.7615, made a low of 0.7564 on Tuesday before bouncing back. Now that position reduction seems to be over feels that the trend higher can resume.

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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