Dollar Plummets, Again

Notwithstanding Friday’s weaker than expected nonfarm payrolls report, US equity indices for the Dow Jones, S&P 500, NASDAQ and Russell 2000 all finished higher on the final day of trade as well as for the week. The small-cap Russell saw its steepest boost since June; the SPX saw its best weekly performance since November. The broad benchmark also hit a new record high on Friday, for the second day in a row.

The disappointing jobs numbers for January strengthened the Democrats’ resolve that $1.9 trillion relief plan was a necessary economic stimulus. While new high-water marks for stocks by definition indicate prices are the most expensive they’ve ever been, cheap money is likely to continue inflating the market bubble.

Crude oil rose to its highest level in over a year on Friday. The dollar plunged.

Here are the key market moving factors for the week:

 The US

• The dollar index, which tracks the greenback’s value against majors, is sidelined near 91.05 at press time.
• The greenback’s corrective bounce from the Jan. 6 low of 89.21 looks to have ended, Friday’s bearish outside day candle indicates. The index fell by 0.5%, as the US Nonfarm Payrolls posted a partly gain of 49K jobs in January, pointing to a slower economic recovery.
• “The disappointing US jobs data may mark the end of the first phase of the dollar’s recovery. A bearish key reversal was posted when it reversed lower after making a new high (~91.60) for the move and closing below the previous session’s low (~91.08),” Marc Chandler, chief market strategist at Bannockburn Global Forex and author of the book “Making Sense of the Dollar,” noted in his blog.
• On the other hand, while portraying market optimism, US bond yields remain on the front foot during the early Monday. This could be well witnessed in the US 10-year Treasury yields that probe March 2020 top and marks a six-day winning streak.
• Following US Senators’ push to the key aid package, comments from US Treasury Secretary Janet Yellen and President Joe Biden began the week on a firmer note. The mood got extra help after the Washington Post suggests a $3,000 per child benefit.

EUROPE

• Mario Draghi, the man credited with saving the euro from collapse during the euro zone sovereign debt crisis in 2012, has been tasked with forming Italy’s new government, but he has his work cut out.
• Investors hope Draghi can implement reforms to boost growth in a country that has long underperformed its European peers, weighing down the whole euro zone.
• Italian financial markets have rallied on the expectation Draghi will succeed. Last week Italy’s 10-year bond yield posted its biggest weekly drop since July, while the gap over the German Bund yield narrowed to its lowest in five years.

The UK

• According to a trade body representing hauliers, exports from the UK to the European Union (EU) plummeted by 68% last month in the post-Brexit trade deal era, per Reuters.
• Trade was disrupted after the end of a transition period following Britain’s departure from the EU.
• Some businesses have struggled with new customs declarations and health certificates as the coronavirus pandemic also hits firms.
• International members at the Road Haulage Association (RHA) reported a 68% fall in exports in January.
• Figures on Friday are expected to show that the U.K. economy continued to expand in the fourth quarter, albeit at a slower rate than the 16% expansion recorded in the prior three months, when the economy was reopening. Economists are forecasting growth of 0.5% quarter-on-quarter, but this was before widespread lockdown measures came back into effect and data for the start of the year is likely to show another dip in activity.
• The pound rose against the dollar last Thursday after the Bank of England indicated that negative interest rates are off the table for now and focused on the prospect of a post-lockdown rebound, helped by Britain’s fast vaccination program in its quarterly update on the economy.
• The central bank lowered its forecast for growth for 2021 as a whole to 5% from its November forecast of 7.25% but raised its forecast for 2022 to 7.25% from 6.25%.

JAPAN

• Japan’s economic recovery from the coronavirus pandemic induced worst postwar recession is seen losing steam in the October-December quarter, according to the latest Reuters poll of economists.
• “The economy is said to have marked a quarter-on-quarter expansion of 2.3% in October-December, as improving exports made up for some of the weakness in consumption.”
• “On an annualized basis, the economy likely expanded 9.5% in October-December after a 22.9% gain in the previous quarter.”
• “Even if the economy rebounds at the estimated pace in the final quarter of last year, it will remain at roughly 80% the level before the pandemic struck in March.”
• “Private consumption, which accounts for more than half of the economy, likely rose just 1.8% in October-December after a 5.1% increase in the previous quarter.”
• “Capital spending was projected to have risen 2.6%, which would be the first increase since January-March last year.”

CHINA

• In a fresh challenge to the upbeat market sentiment, Bloomberg came out with the news suggesting Australian television anchor Cheng Lei’s, formerly a news anchor for Chinese state television, formal arrest in China.
• “Chinese authorities have advised that Cheng was ‘arrested on suspicion of illegally supplying state secrets overseas,’ the statement said,” per the news.
• Additional details suggest that Australia has raised its serious concerns about Ms. Cheng’s detention regularly at senior levels, including about her welfare and conditions of detention.

Market Overview:

 Gold

• Gold has pulled back by $10 from the session high of $1,818, having failed to keep gains above the 50-week Simple Moving Average (SMA) hurdle at $1,815 early Monday. The weekly chart shows the path of least resistance is to the downside.

Oil

• Oil prices rose on Monday, with Brent futures nearing $60 a barrel, boosted by supply cuts among key producers and hopes for further U.S. economic stimulus measures to boost demand.
• Brent crude for April touched a high of $59.95 a barrel and was at $59.85 by 0041 GMT, up 51 cents, or 0.9%. Front-month prices last hit $60 on Feb. 20, 2020.
• S. West Texas Intermediate crude futures advanced 54 cents, or 1%, to $57.39 a barrel, the highest since January last year.

Below are the major market moving events for the week:

 All times listed are EST

Tuesday

7:00: US – EIA Short-Term Energy Outlook

10:00: US – JOLTs Job Openings: expected to drop to 6.400M from 6.52M.

 Wednesday

8:30: US – Core CPI: seen to rise to 0.2% from 0.1%.

10:30: US – Crude Oil Inventories: anticipated to drop to -2.808M from -0.994M.

Thursday

7:00: US – OPEC Monthly Report

8:30: US – Initial Jobless Claims: likely dropped to 750K from 779K.

11:00: US – Fed Monetary Policy Report

 Friday

2:00: UK – GDP: expected to edge higher, to -8.1% from -8.5% YoY and plunge to 0.5% from 16.0% QoQ.

2:00: UK – Manufacturing Production: to remain flat at 0.7%.

5:30: Russia – Interest Rate Decision: forecast to remain steady at 4.25%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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