Tuesday brought some risk-on trading back on the surface as the cooling in US Treasury yields and the slowdown in the dollar allowed risk-sensitive currencies to heal. The dollar index could not reach the 200-day simple moving average (SMA) earlier in the day, peaking slightly lower at 92.50 before easing to 92.00. Despite the weakness in the Japanese yen, dollar/yen also pulled back to seek support near 108.80 after marking another higher high at 109.22.
The sell-off in euro/dollar ceased slightly above the 200-day SMA, with the pair rising to an intra-day high of 1.1914 even though the second GDP growth estimate out of the Eurozone came in slightly below expectations for the fourth quarter at -5.0% y/y. The data is more evidence that a double-dip recession in the bloc is likely, as the lockdown in Q1 could also result in negative GDP prints, though the euro is already immunized to this old news, showing minimal reaction to the data. The ECB’s policy announcement on Thursday will likely be a bigger market mover. If some key EU members manage to avoid a technical recession in Q1 as the Bank of France governor argued today, that could be an interesting development for the euro.
There was no important news out of the UK, therefore the weakness in the dollar was behind the pound’s positive momentum, which attempted to set a foothold slightly above the 50-day SMA and challenge the 1.3900 level on the upside.
Aussie/dollar was the best performer and dollar/swissie was the worst among key dollar pairs. In the commodity space, gold extended yesterday’s gains up to $1,711/oz, oil prices were steady, while copper was down by 2.5%.
Stocks in recovery mode; debt auctions, Chinese inflation figures in focus
The bond market will remain under the spotlight in the rest of the day as large debt auctions are expected to expire today (3-year) and tomorrow (10-year) in the United States. The latter may trigger a bigger wave of volatility given its stronger correlation with stocks. In the meantime, futures tracking the Nasdaq 100 are considerably up by 2.0% after Monday’s slump, and those for S&P 500 are higher by almost 1.0%, pointing to a robust US open. A similar bullish appetite is observed in European equities, with the German DAX 30 unlocking a fresh record high of 14,458 thanks to utilities, industrial, and technology shares.
During tomorrow’s Asian session, the focus will fall to China’s CPI and PPI inflation figures. The data are expected to show a pullback in consumer prices and a sharp upturn in producer prices in February