19 January 2021

US Dollar Slips From 4-Week High

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News shaping
the markets today

     

What’s happening: The US dollar headed south this morning, falling from a four-week high in the previous session, as investors awaited the US Treasury Secretary nominee Janet Yellen’s testimony before the Senate.

What happened: The US dollar started 2021 on a positive note, surging almost 2% against the other major currencies.

The greenback continued its uptrend last week, supported by a rise US Treasury yields after President-elect Joe Biden announced a massive $1.9 trillion coronavirus relief package.

Why it matters: After being dragged through the mud in 2020, the US dollar has made a strong comeback so far this year.

Although news of vaccine rollouts in various countries has triggered optimism around a global economic recovery, spiking infections in the most influential economies have kept investor interest high in safe-haven options.

Appetite for the US dollar has also been supported by higher US Treasury yields, since high yields typically attract more foreign investments, which raises demand for the greenback.

An improving outlook for the US economy, backed by Biden’s additional stimulus plan, also increased faith in the US dollar. Investors now await the Senate confirmation hearing later today for US Treasury secretary nominee Janet Yellen. The Treasury secretary nominee is expected to speak against a weaker US dollar at the hearing.

The US dollar index had slipped by 0.13% to $90.64 at 8am GMT. This could have been on profit taking, after the two-week uptrend that took the index 0.8% higher year to date. Gold prices ticked up in response, edging up around 0.7% to $1,842.30 per ounce.

What to watch: A ramp up in the distribution of vaccines and the gradual opening up of economies will make investors more bullish about the US dollar. The rollout of the fiscal stimulus plan could result in higher bond yields, lending further support to the greenback.

The Markets Today

     

US stocks will be in focus today ahead of earnings reports from some major companies.

Context: US major indices ended the previous week on a downbeat note, despite President-elect Joe Biden announcing a massive $1.9 trillion pandemic relief package late Thursday.

Details: Biden announced a covid-19 rescue plan late Thursday, which included cheques of $1,400 for individuals. Investors remained unmoved, however, having already priced in a high package.

Markets remained concerned about the slow rollout of covid-19 vaccines in the country and also worried about potentially higher taxes by the Biden government.

Disappointment on the economic data front added to the woes. December retail sales fell for the third straight month with a record surge in covid-19 cases in the US. The New York Fed Empire manufacturing index worsened for the fourth month in a row, while the University of Michigan’s consumer sentiment also fell slightly in January.

Wall Street ended last week in the red, with the three major indices notching their biggest single week declines since October 30. The Dow Jones index shed 177.26 points to close at 30,814.26 on Friday, after tumbling around 378.85 points earlier in the session. The S&P 500 fell 0.7% to 3,768.25, while the Nasdaq 100 lost 0.7% to settle at 12,803.93.

What to watch: With no major economic data due to be released today, markets will focus on the corporate earnings season, which kicked off Friday with the release of reports from JPMorgan Chase, Citigroup and Wells Fargo.

Investors will also keep an eye on the earnings from Bank of America, Goldman Sachs, and Netflix.

Covid-19 remains a major concern for investors, with total cases in the US surpassing 24 million.

Other Markets: European trading indices closed mostly higher on Monday, with the German DAX 30 and French 40 up by 0.44% and 0.10%, respectively. The FTSE 100 bucked the trend, however, declining by 0.22%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Eurozone’s new passenger car registrations, current account surplus, construction output and ZEW indicator of economic sentiment, Germany’s consumer prices and ZEW indicator of economic sentiment, Italy's balance of trade and current account, South Africa’s mining production and gold production, UK’s labour productivity, Russia’s current account and consumer confidence, China’s foreign direct investment as well as Canada’s car registrations, manufacturing sales and wholesale sales.

 

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