A Subdued Start To A Big Week

The euro is trading off in the European morning.  It dipped to $1.2140 after finishing last week, near $1.2170.  The $1.2160-$1.2180 area offers a band of resistance.  A move above $1.2200 (and the 20-day moving average and the 50% retracement of the decline since January 6) would lift the technical tone.  Sterling is little changed within the pre-weekend range, trading between roughly $1.3665 and $1.3725.  The intraday technical readings of both the euro (FXE) and sterling (FXB) suggest that the upside may be favored in early North American turnover.   


This is a big week for the US.  Investors will get the first look at Q4 GDP (a little more than 4% is expected at an annualized pace), and the FOMC meets.  The FOMC statement may be less interesting than Chair Powell's comments. Like the other governors, Powell has played down the likelihood of reducing the Fed's long-term asset purchases this year. In contrast, several regional presidents have suggested it is possible but conditional on the economy's evolution.  Many Fed officials, including Powell, have argued forcefully for more fiscal stimulus.  In addition to the FOMC and Q4 GDP, several tech giants, including Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Google, report earnings in the coming days. This week also sees a flood of Treasury coupon auctions, including $60 bln two-year notes, $61 bln five-year notes, and $62 bln seven-year notes.  The Treasury will also sell two-year floating notes.   

President Biden is expected to sign an executive order today that will close some loopholes for the "Buy American" initiative that favors domestic suppliers for federal government contracts.  While there are apparent differences between Biden and Trump administrations, there is a common economic nationalism element.  A senior research analyst at Mizuho Research Institute was quoted in the Kyoto news last week and put it like this:  "Biden in principle shares the America First mantra with Trump, so even if he does not use provocative and high-handed Trump-like methods, he will urge Japan to further open its markets and make harsh demands."  European officials recognize the differences Biden brings to the table, but they also seem to have a realistic sense of diverging interests and the need to reduce its reliance.  

The economic calendars for North America are light today.  The Chicago Fed's national activity index for December and the Dallas manufacturing index for January typically do not draw much market attention. There is a quiet period ahead of the FOMC meeting's conclusion in the middle of the week.  Canada's diary is light this week, and at the end of the week, it will report November GDP.  Mexico reports November retail sales tomorrow, December trade surplus Thursday, and preliminary Q4 GDP ahead of the weekend.  The Bloomberg survey's median forecast is for 3.1% growth in the final three months of 2020, which would translate into a 5.1% year-over-year contraction.  Separately, minutes from the recent Brazil central bank meeting will be released today, and investors may scrutinize them for clues into how soon officials are really prepared to hike rates.  

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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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