EUR/USD: Markets ectsatic, dollar under siege, but no one knows what will happen next

Trading 25 Fév 2021 Commentaire »

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Federal Reserve Chairman Jerome Powell still managed to return calm to the markets

As a result, US stock indexes continued to grow, the EUR/USD pair reached one-and-a-half-month highs, and the greenback sank to its lowest levels since the beginning of the year.

Yesterday, Powell once again said that the central bank will not adjust monetary policy until the US economy shows clear signs of improvement, and will monitor any short-term surge in inflation. Powell's speech at the House Financial Services Committee echoed his previous speech in the Senate.

The Fed promises to keep interest rates low and print money for as long as necessary. This is negative news for the US currency.

The USD index plunged to 89.7 points on Thursday, reaching the lowest values since the beginning of January.

The dollar's weakness has been more pronounced in recent days, as it comes amid a rise in US 10-year bond yields to their highest levels in almost a year.

The greenback is expected to weaken as the global economy revives and the focus on reflationary trading increases.

In the meantime, the dollar may rise from time to time on outbreaks of risk avoidance associated with an overly optimistic orientation of markets to the global economic recovery and with concerns that mass vaccination may not be fast enough and effective enough to have a significant impact before the spring of 2022.

The COVID-19 pandemic will end early next year. This statement was made by the head of the Regional Office for Europe of the World Health Organization (WHO), Hans Kluge.

He believes that the virus will not disappear from the human population, but by the designated date, there will be no need for all restrictions. At the same time, Kluge stressed that this is only a forecast, and so far no one can say exactly how the situation will develop.

Powell also discussed the uncertainty on Tuesday.

"The normalization of the US economy is far from complete, and the future path remains uncertain," he said during a hearing before the Senate Banking Committee.

On Wednesday, Powell finally dispelled rumors about the possibility of tightening monetary policy in the United States as early as 2022, which stimulated rates for reflation and spurred demand for risky assets.

"The markets understand that the punch bowl is not going anywhere anytime soon. The monetary and political backdrop should support risky assets for some time to come," National Australia Bank strategists said.

Against the backdrop of Powell's dovish comments and the recovery of risk appetite, the EUR/USD pair rose above 1.2200 for the first time since early January.

"The euro is unlikely to benefit much from the global reflationary scenario, as the EU is still in the pit of coronavirus restrictions," Saxo Bank experts say.

Nordea specialists, in turn, note that the increase in long-term profitability in the EU is already causing concern for the ECB. Against this background, the EUR/USD pair has probably already reached a growth ceiling and can now fall by the end of the year to the 1.1600 region, they believe.

"Long-term US yields are likely to continue to rise amid expectations for a massive new stimulus package for the national economy, as well as the green light that the Fed gave to yields. It will look good against the backdrop of the dynamics of profitability in Europe. It is not yet clear how aggressively the ECB is prepared to deal with the rise in nominal profitability in the region. At least at this stage, the central bank does not make serious changes to the emergency asset repurchase program (PEPP), but in the future it may take some steps. We expect the EUR/USD to decline amid the ECB's concerns about the overly strong euro. In this regard, we adhere to the forecast that by the end of 2021 the pair will slump to the area of 1.1600," Nordea said.

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Dollar knocked out: temporary drop or steady downward trend

Trading 25 Fév 2021 Commentaire »

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Federal Reserve Chairman Jerome Powell made it clear that it will take a long time to achieve the central bank's inflation target – about three years. This time frame was announced for the first time. For the financial market, this means that the printing press of the US central bank will work for a long time, and the rate will remain near zero. If earlier bank analysts allowed for a tightening of monetary policy more and more often in their forecasts, now this question has disappeared. Powell will put all the dots on the "i". The dollar received a clear negative signal. The dollar index went below 90 points on Thursday.

There is an uncertainty factor in the form of the report on the US GDP indicator. The market has recently reacted poorly to such figures, but, nevertheless, this is an important indicator that can affect the dollar exchange rate.

The US economy grew by 4.1% in the fourth quarter of 2020, according to the second estimate. At the same time, the markets expected an improvement in the estimate of the growth rate to 4.2%. The number of initial applications for unemployment benefits in the United States decreased by 111,000. The consensus forecast suggested a reduction in the indicator by only 23,000. This rate of decline is the fastest since August 2020, and the indicator itself fell to the lowest since the end of November.

No matter how much the dollar is scolded, it is not as hopeless as it may seem now. This year, the US economy is likely to recover faster than in other developed countries. Investors draw conclusions and begin to adjust expectations about interest rates in the United States. This will benefit the dollar.

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As for the EUR/USD pair, it maintains the trend for recovery, breaking through the area of the value of 1.2230. In addition to the weakening dollar, the euro continues to be supported by macroeconomic reports. The German economy grew by 0.3% in the fourth quarter of 2020. The catalyst was an increase in investment and exports, which offset a decline in consumer and government spending.

According to the research company GfK, the index of consumer confidence in the German economy rose to -12.9 points in March from the revised level of -15.5 points in February, which is better than the forecast.

Another trigger for the euro may be a long-awaited breakthrough in the issue of new incentives in the United States. The $1.9 trillion package of measures is expected to be adopted on Friday. US President Joe Biden must sign the bill by mid-March. At this time, the main unemployment programs expire.

After the bill is passed, the new printed money will accelerate inflation, and the stock market will grow stronger. Given this factor, traders are selling the US dollar, which seems to be the main victim of such a significant increase in the money supply in the country.

EUR/USD quotes may grow around the 1.23 mark in the short term. Closer to May, if there are no events that can neutralize all the positive for the euro, the main forex pair will get close to the 1.25 mark.

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Traders of the pound, probably, have already managed to put all the available positives in the pound's value, and now the British currency simply has nothing to grow on. The rally against the dollar slowed near the 1.42 mark. Analysts suspect that the GBP/USD pair has peaked.

Although the vaccination news remains positive, its impact on the pound may be weak. "The movement in the rate market has already exhausted itself, and it is unlikely that the markets will start discounting further rate increases," RBC wrote.

Speaking about the pound, it is necessary to take into account the situation in the energy market, where the quotes have accelerated and can not stop. Panic sentiment due to the pandemic is gradually fading, traders are hoping for a mass vaccination. This is also noticeable in terms of indicators, namely, the inter-market gold/oil ratio, which continues to decline and has settled below the 27.5 mark. During the height of the panic, it exceeded the 50 mark, and before the pandemic it was around 23.5. Thus, the growth of oil and the decline of gold should continue. The British currency is historically correlated with oil contracts, so a decrease in this ratio may cause the continuation of the upward trend in the pound.

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Portugal Consumer Confidence Weakens In February

Trading 25 Fév 2021 Commentaire »

Portugal's consumer confidence deteriorated in February after strengthening in the previous two months, preliminary data from Statistics Portugal showed Thursday.

The consumer confidence index fell to -25.8 from -23.1 in January. The weakening was mainly due to the negative contribution of the perspectives regarding the outlook for the country's economic situation.

Expectations on the outlook for spending on major purchases also contributed negatively.

The economic sentiment index dropped to -1.8 from -0.9 in the previous month. The manufacturing confidence measure improved to -13.9 from -15.1.


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U.S. Pending Home Sales Unexpectedly Show Steep Drop In January

Trading 25 Fév 2021 Commentaire »

With inventory constraints continuing to hold back prospective buyers, the National Association of Realtors released a report on Thursday showing a steep drop in U.S. pending home sales in the month of January.

NAR said its pending home sales index tumbled by 2.8 percent to 122.8 in January after rising by 0.5 percent to an upwardly revised 126.4 in December.

Economists had expected pending home sales to come in unchanged compared to the 0.3 percent dip originally reported for the previous month.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

"Pending home sales fell in January because there are simply not enough homes to match the demand on the market," said Lawrence Yun, NAR's chief economist. "That said, there has been an increase in permits and requests to build new homes."

Yun said eight straight monthly increases in permits for single-family homes is a good sign the supply and demand imbalance in the residential real estate market could be easing, as soon as mid-2021.

"There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months," he added. "These trends, along with an anticipated ramp-up in home construction will provide for much-needed supply."

The sharp drop in pending home sales in January reflected substantial decreases in pending sales in the West and Northeast, which plunged by 7.8 percent and 7.4 percent, respectively.

Pending home sales in the Midwest also fell by 0.9 percent, while pending home sales in the South inched up by 0.1 percent.

Data released by the Commerce Department on Wednesday showed a much bigger than expected jump in new home sales in the U.S. in the month of January.

The Commerce Department said new home sales spiked by 4.3 percent to an annual rate of 923,000 in January after soaring by 5.5 percent to a revised rate of 885,000 in December.

Economists had expected new home sales to surge up by 1.5 percent to a rate of 855,000 from the 842,000 originally reported for the previous month.


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*U.S. Pending Home Sales Tumble 2.8% In January

Trading 25 Fév 2021 Commentaire »

U.S. Pending Home Sales Tumble 2.8% In January


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U.S. GDP Grows Slightly More Than Initially Estimated In Q4

Trading 25 Fév 2021 Commentaire »

Revised data released by the Commerce Department on Thursday showed U.S. gross domestic product jumped by slightly more than originally estimated in the fourth quarter of 2020.

The Commerce Department said GDP surged up by 4.1 percent in the fourth quarter compared to the previously reported 4.0 percent spike. The upward revision matched economist estimates.

The slightly stronger than previously estimated GDP growth reflected upward revisions to residential fixed investment, private inventory investment, and state and local government.

However, the upward revisions were partly offset by a modest downward revision to consumer spending, which surged up by 2.4 percent compared to the previously reported 2.5 percent jump.

Gregory Daco, Chief U.S. Economist at Oxford Economics, said a "worsening health situation, slower employment gains and dwindling fiscal aid limiting the consumer spending advance."

"Strong housing activity and resilient business investment helped offset the consumer spending softness at the end of last year," Daco said.

Despite the slight upward revision, the increase in GDP in the fourth quarter still reflected a significant slowdown from the 33.4 percent spike seen in the third quarter of 2020.

The report also showed growth in core consumer prices, which exclude food and energy prices, slowed to 1.4 percent in the fourth quarter from 3.4 percent in the third quarter.

Looking at the current quarter, Daco said, "The combination of fiscal stimulus and improving health conditions at the start of 2021 have led to a string of positive economic surprises which, in turn, have led us to revise our GDP tracker to 7.2% (annualized) in Q1."

"Thereafter, we anticipate a summer mini boom in activity juiced-up by reduced virus transmission, increased vaccine diffusion, and generous fiscal stimulus," he added.


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U.S. Durable Goods Orders Spike Above Pre-Pandemic Levels In January

Trading 25 Fév 2021 Commentaire »

New orders for U.S. manufactured durable goods spiked by much more than expected in the month of January, according to a report released by the Commerce Department on Thursday.

The report said durable goods orders soared by 3.4 percent in January after jumping by an upwardly revised 1.2 percent in December.

Economists had expected durable goods orders to surge up by 1.1 percent compared to the 0.5 percent increase that had been reported for the previous month.

"Headline durable goods orders completed their recovery in January, rising above their pre-pandemic level," said Oren Klachkin, Lead U.S. Economist at Oxford Economics. "We expect activity to stay well-supported as buoyant orders signal shipments have further room to run."

The much bigger than expected increase in durable goods orders was partly due to a spike in orders for transportation equipment, which shot up by 7.8 percent in January after inching up by 0.1 percent in December.

Orders for non-defense aircraft and parts skyrocketed by 389.9 percent in January after plunging by 56.7 percent in the previous month, reflecting fewer net cancellations at Boeing (BA).

Excluding the sharp increase in orders for transportation equipment, durable goods orders still jumped by 1.4 percent in January after spiking by an upwardly revised 1.7 percent in December.

Ex-transportation orders had been expected to climb by 0.7 percent, matching the increase that had been reported for the previous month.

Orders for electrical equipment, appliances and components, primary metals and fabricated metal products all showed significant increases.

The report also said orders for non-defense capital goods excluding aircraft, a key indicator of business spending, rose by 0.5 percent in January after jumping by 1.5 percent in December.

Shipments in the same category, which is the source data for equipment investment in GDP, surged up by 2.1 percent in January after climbing by 1.0 percent in the previous month.

"That suggests equipment investment growth is on track for a strong 15% annualised in the first quarter, albeit down from a red-hot 25% in the fourth," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "With investment already above pre-pandemic levels, that pace of growth won't be sustained indefinitely, but the still-low level of interest rates and upbeat survey evidence are consistent with growth remaining solid over the months ahead."


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U.S. Jobless Claims Tumble Much More Than Expected To 730,000

Trading 25 Fév 2021 Commentaire »

A report released by the Labor Department on Thursday showed a steep drop in first-time claims for U.S. unemployment benefits in the week ended February 20th.

The Labor Department said initial jobless claims tumbled to 730,000, a decrease of 111,000 from the previous week's revised level of 841,000.

Economists had expected jobless claims to drop to 838,000 from the 861,000 originally reported for the previous week.

With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 716,000 in the week ended November 28th.

"The drop may be signaling a turning point for labor market conditions," said Nancy Vanden Houten, Lead Economist at Oxford Economics. "However, the data continue to suffer from noise related to issues of backlogs and fraud."

She added, "We expect a more sustainable labor market recovery to take hold closer to mid-year with broader vaccine distribution and the arrival of more fiscal support."

The report showed the less volatile four-week moving average also fell to 807,750, a decrease of 20,500 from the previous week's revised average of 828,250.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also declined by 101,000 to 4.419 million in the week ended February 13th.

The four-week moving average of continuing claims dropped to 4,547,000, a decrease of 91,500 from the previous week's revised average of 4,638,500.

Next Friday, the Labor Department is scheduled to release its more closely watched monthly employment report for February.


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U.S. GDP Jumps Slightly More Than Previously Estimated In Q4

Trading 25 Fév 2021 Commentaire »

Revised data released by the Commerce Department on Thursday showed U.S. gross domestic product jumped by slightly more than originally estimated in the fourth quarter of 2020.

The Commerce Department said GDP surged up by 4.1 percent in the fourth quarter compared to the previously reported 4.0 percent spike. The upward revision matched economist estimates.

The slightly stronger than previously estimated GDP growth came as upward revisions to residential fixed investment, private inventory investment, and state and local government spending were partly offset by a downward revision to consumer spending.


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U.S. Durable Goods Orders Spike Much More Than Expected In January

Trading 25 Fév 2021 Commentaire »

New orders for U.S. manufactured durable goods spiked by much more than expected in the month of January, according to a report released by the Commerce Department on Thursday.

The report said durable goods orders soared by 3.4 percent in January after jumping by an upwardly revised 1.2 percent in December.

Economists had expected durable goods orders to surge up by 1.1 percent compared to the 0.5 percent increase that had been reported for the previous month.

Excluding a sharp increase in orders for transportation equipment, durable goods orders still jumped by 1.4 percent in January after spiking by an upwardly revised 1.7 percent in December.

Ex-transportation orders had been expected to climb by 0.7 percent, matching the increase that had been reported for the previous month.


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