The Canadian dollar rallied as FX risk sentiment turned positive overnight.
Japan’s Nikkei 225 index climbed 1.4%, and Hong Kong’s Hang Seng index jumped 2.7%, thanks to expectations of even more U.S. government stimulus measures under the Biden administration.
That view will be reinforced today during Janet Yellen’s Treasury Secretary confirmation hearing. The Wall Street Journal had a copy of her prepared remarks. Yellen supports Biden’s aggressive stimulus policies saying "Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big."
Yellen believes she has a dual mission - getting Americans through the coronavirus crisis and rebuilding the economy to create more prosperity.
The International Energy Administration (IEA) cut its forecast for global oil demand in 2021 by 300,000 barrels/day. They said "For now, a resurgence in COVID-19 cases is slowing the rebound, but a widespread vaccination effort and an acceleration in economic activity is expected to spur stronger growth in the second half of the year."
It's not all doom and gloom. The IEA also wrote, "Global oil demand is expected to increase by 6% to 96.6 mb/d in 2021 after an unprecedented drop in 2020." West Texas Intermediate (WTI) dropped from $52.75 to $52.43/b on the news, as prices continue to consolidate last week’s losses.
EUR/USD rallied and reached $1.2137 overnight, buoyed by the rebound in positive risk sentiment. Prices got a bit of a lift from better than expected German ZEW data and a slight easing in the Italian political drama. Prime Minister Conte won a crucial vote in the lower house. However, the Senate is still a significant obstacle. The intraday EUR/USD technicals are bullish while prices are above $1.2050, looking for a break above $1.2150 to extend gains to $1.2270.
GBP/USD rallied alongside the rest of the G-10 major currencies. Prices rose from $1.3580 to $1.3526. Gains above resistance at $1.3680 may be hard to achieve in a post-Brexit world, as importers and exporters deal with new customs regulations. The domestic economy is vulnerable to a further slowdown from reports the government may extend existing strict COVID-19 lockdown measures.
The Yellen hearing and Wall Street prices action will dictate FX moves today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
