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Risk-on mood fuelled by stimulus hopes

9 February 2021

Risk-on could remain the name of the game this week as investors take comfort from vaccine rollouts and progress over a proposed $1.9 trillion US fiscal package. Asian shares were mixed this morning, despite the three major U.S. indexes setting another round of record highs overnight.

European stocks are expected to open in positive territory while US stock futures are flat. Despite the sense of caution in the air, equity bulls are drunk on the prospects for a robust federal spending package while a slowdown in virus infection rates is the cherry on the cake. With an increase in the global vaccination numbers adding to the overall optimism, equity bulls are still in the game and hungry for fresh record highs.

While the positive mood may spur demand for riskier assets, negative developments revolving around Covid-19 could still throw a proverbial wrench in the works for the current rally.

Dollar Index back below 91.00

Anyone else not surprised that the Dollar has tumbled back below the 91.00 level? As much as the Greenback has shown resilience in 2021, it's trapped in a losing battle against the great reflation trade. Market expectations over a large U.S. economic stimulus package triggering inflationary pressures continue to drain the Dollar. Looking at the technical picture, prices are likely to trade lower if a daily close below 90.50 is secured.

Euro rebounds on weaker Dollar

The title says it all. A weaker Dollar has elevated the EURUSD back above 1.2050. Prices are back within the wide range with support at 1.2000 and resistance at 1.2130. If the Dollar continues to weaken, this could inject EURUSD bulls with enough inspiration to push prices beyond 1.2130 with 1.2200 acting as a key point of interest.

GBPUSD breaks above 1.3750 

After almost one month of chipping away at the 1.3750 level, bulls have finally conquered this resistance with the help of a weaker Dollar. A solid weekly close above 1.3750 may open the doors towards 1.4200 in the medium term. If prices sink back below 1.3750, the GBPUSD may decline towards 1.3600 and 1.3480.

Commodity spotlight – Gold

Gold remains a fierce battleground for bulls and bears. The metal continues to be pulled and tugged by conflicting forces, and this continues to be reflected in the metal’s choppy performance. On one side of the equation, gold bulls remain protected by the great “reflation trade” and negative developments revolving around Covid-19. However, stimulus hopes continue to lift the market mood and overall risk sentiment – themes that could limit upside gains.

Key levels of interest on gold remain around the sticky $1850 regions, $1820, $1800, and $1876. A fresh directional catalyst may be needed for prices to break away from the current wide ranges.



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