EUR/USD broke below the 1.2050 support level on Tuesday but news that Mario Draghi may become the next Prime Minister in Italy could help the single currency to recover a little today.
USD: Resilience to risk appetite is fading
A good day in global equity markets did not generate much selling pressure on the safe-haven dollar yesterday, partly thanks to EUR/USD breaking below some key technicals. Equity futures point at another good open today and the dollar has been gently offered in the Asian session. On the domestic side, Biden’s $1.9tn plan may be set to benefit from a fast-track process in the Senate that will increase the chances of securing Congress approval. Positive developments on this side may put a floor below risk assets, with some focus however remaining on highly volatile/retail-driven stocks. On the data front, ADP employment numbers for January will start directing expectations ahead of Friday’s non-farm payrolls. Our economists expect both the ADP and NFP to show an above-consensus net increase of around 100k. January’s services ISM, also released today, is expected to edge lower. Recent USD resilience to improving sentiment may start to fade today if equities continue to grind higher.
EUR: Draghi poised to become next Italian PM
EUR/USD broke below the 1.2050 support (that had held through January) during yesterday’s session but found some support in the evening following the news that Mario Draghi may become the next Prime Minister in Italy. The Italian President will meet Draghi today to give him a formal mandate. The move is directly aimed at solving the political instability in Italy as Draghi is believed to be able to garner a larger and more stable majority in Parliament. Draghi’s acceptance of a mandate and indications of a majority backing him will likely be welcomed by markets and may give some further support to European assets. That said, the recent political turmoil in Italy has not generated any risk premia build-up on EUR/USD or EUR/CHF: thus, the upside potential from the end of the government crisis may also be somewhat contained. Still, when paired with some softening USD momentum, it could at least help EUR/USD recover and consolidate in the upper half of the 1.20-1.21 region today.
GBP: Waiting for the BoE tomorrow
It’s a quiet day in the UK as investors anxiously await tomorrow’s Bank of England meeting. We retain a general bullish bias on GBP thanks to the UK’s vaccination primacy and our view that the BoE will steer away from negative rates this year.
NZD: Good employment data argues against more RBNZ stimulus
New Zealand’s economy continues to prove highly resilient, as the 4Q jobs report showed a surprise drop in unemployment to 4.9%. Considering activity is back above pre-pandemic levels and inflation has also ticked higher, the Reserve Bank of New Zealand may struggle to match the Reserve Bank of Australia's dovishness when it meets on 24 February. Add to this the staggering iron ore prices (watch for the release of Vale’s output outlook today), AUD/NZD short-term risks appear still tilted to the downside.
Comments
Log in or sign up to join the conversation.