Dramatic Market Adjustment Continues

The euro reached $1.2180, its highest level in nearly a month, as it approached the $1.2200 level, which capped the single currency back in the second half of January. It also marks the (61.8%) retracement objective of the euro's pullback from the $1.2350 high set on January 6. There is an option struck at $1.22 for almost 810 mln euros that expires today. Initial support is seen in the $1.2120-$1.2130 area today. Sterling's ascent continues. It approached $1.41 in late Asian turnover but stalled in the European morning. A break of $1.4060 could signal a deeper pullback, but the market looks to be in the mood to buy shallow dips. It is the fourth consecutive advancing session, and it has fallen in only four sessions this month. Important chart resistance is not seen until the double high from H1 18 around $1.4345-$1.4375.  

America

There are two highlights of today's North American session. First, Federal Reserve Chairman Powell testifies before the Senate Banking Committee. His prepared remarks have already been made available. The market-sensitive aspect will be the answer to questions by the Senators. There will be much focus on inflation and why Fed officials continue to play down the risks. Powell will talk about the slack in the labor market, and dare one say, a jobless recovery. The argument is that the real level of unemployment may be closer to 10%, and more people are filing for initial jobless claims than did so at the peak of the Great Financial Crisis. Without going into specifics, Powell will endorse the need for more fiscal stimulus. The $1.9 trillion packages passed a House committee yesterday without a single Republican vote. Meanwhile, the Treasury's effort to reduce its cash balance at the Fed already appears to be having an impact on some money market rates. Last week's 4 and 8-week bill auctions had no yield for the first time since last March, and yesterday's 3-month bill auction also generated the lowest rate in 11 months. The yield on the new six-month bill was the lowest since October 2014. 

The second highlight is in Canada. Bank of Canada Governor Macklem delivers a speech on the labor market and the sectoral impact of the virus. More broadly, Macklem may seem more upbeat than the central bank's forecast for a nearly 3% contraction here in Q1 suggests. Around the same time, Biden will meet Trudeau, the first foreign leader meeting with the US president. They will likely emphasize common interests like addressing the virus, climate change, and the North American economy. Other issues, like the XL pipeline that Biden canceled and the "buy American" program of government procurement, are more controversial and likely will not be dwelled up. Yesterday's the Canadian parliament passed a non-binding resolution with no dissenting votes, calling China's treatment of the Uighur Muslim minority a "genocide" and trying to force Trudeau into a deeper confrontation with Beijing. 

The Biden administration maintains Trump's position at the World Trade Organization after supporting Okonjo-Iweala as the next director. The Trump administration had blocked her appointment in the face of literally unanimous global support. There are two substantive issues. First, the US claims that it is a question of national security that Hong Kong goods are treated as made in China and hence outside of the WTO's jurisdiction. The WTO is not convinced and will investigate the matter further, though it could take years to resolve. Second, the US will continue to block judges to the appellate body, without which the WTO's conflict-resolution and adjudication of disputes are paralyzed. The US argued that it has systematic concerns about its functioning, as have the past three presidents. 

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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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