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SquaredCommentary: 5th February 2021


5 February 2021

The focus today is on the NFP print and the FX markets as the G10 currencies sit at key levels.  Investors will be wary of fading the USD rally here as there may be further position cutting into the NFP print and ahead of the weekend.

Drivers


Yesterday the US initial jobless claims showed a strengthening labour market.  This comes after a strong employment sub index in the ISM Services and strong ADP.  This suggests a strong print from NFP today and it likely helping the USD rally.

The Fed’s Esther George noted in a Bloomberg interview overnight that it was too soon to discuss tapering.  This completes a   host of Fed speakers this week converging to Powell’s dovish stance.

The US yield curve steepening to levels not seen since 2015 on the back of rapidly improving data and a reignited reflation trade.  With US equities also outperforming the USD is rallying in a risk on fashion which has caught market positioning the wrong way and caused those calling for a downtrend in USD to reconsider.  We may be seeing the first signs of US exceptionalism returning, or this may just be a short-term position reduction   of USD shorts.

BOE encouraged banks in the UK to prepare for negative rates although it showed no signs of planning to implement them soon.  The MPC also suggested they expect a strong rebound in growth on the back of the UK’s impressive vaccination roll out. The market took this as hawkish overall as some had expected negative rates to come soon.  The upbeat outlook about the economy after the vaccine roll out was also taken positively and has allowed GBP to outperform.

At the RBA Lowe continued the dovish line this morning.  He said that they would not be raising interest rates when inflation goes above 2% as would like to see it above there for some time.  Although he did note that it is possible that they could do better than their upside scenario and then could consider adjusting rates.


Numbers to Watch


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.

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