Greenback Remains Heavy

The euro has been bid above $1.2150, the (50%) retracement of the decline from the January 6 high of $1.2350. The next retracement target (61.8%) is closer to $1.2200. There is a 1.5 bn euro option that will expire today at $1.22, but there is another one expiring for 1.4 bln euros on Thursday. Support is now seen in the $1.2120-$1.2130 area. Sterling's advance continues. This leg-up began with the spike low to nearly $1.3565 on February 4. It has only fallen in one session since then and today briefly traded above $1.3950. As the $1.40-chart and psychological resistance is approached, momentum will likely slow. Be attentive to reversal patterns. Initial support may be seen around $1.3840-$1.3860.

America

The winter storm ravaging the US Midwest has adversely impacted five mln Americans and nearly as many Mexicans. Power outages and rolling blackouts have been experienced. The largest US refiners have been shuttered, which impacts around a million barrels of oil production in the Permian Basin. Some 10 bln cubic feet of natural gas have also been disrupted. This may help galvanize the Biden administration's infrastructure initiative, expected shortly after the stimulus bill next month. At the same time, it challenges Mexico's power grid and will likely reinforce AMLO's energy nationalist agenda.

It appears that the Biden administration will give negotiations with Republicans over the stimulus bill another couple of weeks before resorting to the reconciliation device that will allow it to pass with a simple majority in the Senate. Assistance to state and local governments may be the key issue to watch. Romney said it was the main obstacle. It is slightly ironic in the sense that the Republicans hold a majority of governorships and state legislatures. Many of them seem to want a piece of the $350 bln that Biden's stimulus plan earmarks for state and local governments. The may still be some of the $150 bln funds made available under the earlier CARES Act, but conditionality (only to be used for direct Covid expenses) limited its use.

To the chagrin of some of our partisan friends, we have noted the continuity of US foreign policy from Obama to Trump and now Biden in terms of growing confrontation with China and hostility to the Nord Stream II pipeline. The WTO is a different matter. Biden immediately dropped Trump's objection to Okonjo-Iweala's candidacy to lead the WTO. She is the first woman, African, and American to assume the post (dual citizenship Nigeria/US). Imagine how divided the world appears, yet she won with the unanimous support of the 164 members. The most immediate issue is reanimating the appellate process, which the Trump administration had effectively blocked. It is not clear if the Biden will demand some concession. Two trade issues also reportedly will be high on the agenda. E-commerce is estimated to be a $26 trillion industry. If it will not fragment or provide new terrain for tax/regulatory arbitrage, then an international agreement is necessary. There is also scope for an agreement on ruinous fishing subsidies. Modernizing rules on industrial subsidies, the role of state-owned enterprises, and forced technology transfers will likely need more groundwork before new policies can emerge, and Okonjo-Iweala seems ready to begin that process.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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