Dollar Strengthens, US Equity Futures Flat

13 Jan 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • ECB President expresses confidence in her speech
  • French economy shrinks substantially

The US dollar is climbing higher on Tuesday morning as the European session is in its early hours of trading. Earlier today, the EURUSD was holding above the 1.2200 level with a peak of 1.2222. However, US dollar bulls shifted gears and brought the pair back below 1.2200. The USDCHF, USDJPY, and USDCAD are also showing signs of appreciation as the dollar moves higher across the board.

The EURUSD pair has been trading in a short-term downtrend that started last Thursday, Jan 7 when the exchange rate was at its three-year high near 1.2350. The sharp sell-off in the past few days pushed the pair to a low of 1.2132 on Monday this week and the price is now gravitating towards 1.2280. Earlier today, the European Central Bank President Christine Lagarde gave a speech where she highlighted the fact that the uncertainties surrounding Brexit, the US election, and the vaccine rollout have been cleared. In her remarks, President Lagarde stated that she is optimistic about the outlook for 2021 based on the positive start so far.

Movements Across the Markets

The Governing Council member and Bank of France Head Francois Villeroy de Galhau also made a speech today in which he reaffirmed that the ECB is closely monitoring the negative effect of a strong Euro, while also recommitting xto “keep favorable monetary conditions as long as necessary”. Most of the European countries remain under some form of a lockdown, which weighs on the eurozone economy. The Bank of France released the latest estimates which show the French economy contracted roughly 4% in 4Q2020. Although the government lifted the lockdown in December and economic activity picked up, the activity was not enough to provide the needed bounce to produce a stronger result. The Bank of France said it continues to stick with its forecast, that is, that the second-biggest economy in the eurozone shrank by 9% in 2020.

Over to the UK and the sterling, the GBPUSD rate jumped near recent tops after Bank of England Governor Andrew Bailey dismissed negative interest rates and called them “controversial”. The GBPUSD is now trading near 1.3700, closing in on its recent peak of 1.3704 reached on Jan 4, the first trading day in 2021. Current levels are significant for they were last seen in April 2018. The sterling has been moving strongly to the upside after the March meltdown, posting a return of 20% against the US dollar since then.

Gold has been trying to extend the bounce from recent lows and is now keeping above $1,850 as bulls struggle to create momentum to cause a stronger move to the upside. Gold reached a one-month low on Monday, falling to $1,816.

Across the Atlantic, US equity futures struggle for a direction, showing moderate gains at the open later today. Investors’ focus on Wednesday will be on the expected impeachment vote as Democrats are preparing to impeach President Donald Trump for “high crimes and misdemeanors”. The vote on the single article of impeachment comes after the rejection of Vice President Mike Pence to invoke the 25th amendment to remove President Trump from office.

On the calendar today, economic news that may impact the market includes the Core CPI data. Investors will be monitoring this data to see if the figures will indicate a pickup in inflation in December.

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