The US Dollar Comes Back Bid After Being Squeezed Yesterday


France and Italy have extended their social restriction. Germany seems on the verge of new restrictions itself. In a rare reversal, Merkel abandoned the proposed hard lockdown over Easter. Although Merkel apologized, the government is still struggling to get ahead of the covid curve. Reports indicated that Germany's covid victims in intensive care are at their highest level in two months. The Chair of the CDU, and candidate to replace Merkel as Chancellor, Laschet, wants to revisit the hard and short lockdown. Merkel is to meet with the other state leaders next week, but Laschet is pushing for a meeting earlier. The mere fact that Europe is experiencing a new wave is problematic for governments. Until last November, Continental Europe had fared better than the US and UK several metrics. The goodwill earned in the early part of the pandemic has dissipated for Merkel and Macron. Lashet's endorsement of the lockdown may be the proper move for public health, but it would seem to boost the chances of Soeder, the CSU-head of Bavaria, to lead the CDU/CSU coalition in September's general election. 

The EU is returning from the holiday in a seemingly upbeat mood. The news reports suggest that the EC now projects that there will be sufficient vaccine supplies to immunize a majority of people by the end of June. In new projections, the five largest countries (Germany, France, Italy, Spain, and the Netherlands) will be able to vaccinate a little more than half their populations. The EC wants 70% of the adults immunized by the summer, which is 55%-60% of their populations in many countries.,

The euro posted an outside up day yesterday and rose above $1.18 for the first time since March 26. Follow-through buying today has been limited to about 2/100 of a penny. The euro appears to have carved out a small head and shoulders bottom, and if the pattern is valid, it should hold above the $1.1780 area. The pattern projects to a little above $1.19. However, ahead of it is the 200-day moving average (~$1.1885) and a little lower is the retracement objective of the leg down since March 18, when it last approached $1.20. Sterling rose to its best level since March 19, just shy of $1.3915 yesterday.  It managed to extend it a few ticks before sellers emerged and pushed the sterling back toward yesterday's lows. A break of $1.38 could spur another half-cent decline. Some pressure on cable appears to be coming from a cross-rate adjustment against the euro. The euro slipped below GBP0.8500 yesterday, its lowest level in more than a year, and is bouncing back smartly today. Initial resistance is seen near GBP0.8550-GBP0.8560.  


The US sees the JOLTS jobs report today, but the market accepts that the labor market is improving. Ahead of tomorrow's FOMC minutes, the February trade balance (a record deficit?), and consumer credit, the investors will digest two other developments. First, the Senate Parliamentarian ruled yesterday that the special budget rules that allow the avoidance of a filibuster (reconciliation) can be applied to the two-part infrastructure/jobs proposals and allow passage with a simple majority. That means the disputes within the Democratic party need to be resolved. This will also mean that the debt ceiling suspension that runs through July may not be renewed. The Biden administration will use extraordinary measures to extend its borrowing authority until the 2022 budget. It will raise the debt ceiling. Second, the US Court of International Trade concluded that the Trump administration's expansion of Section 232 tariffs on steel and aluminum derivatives last January overstepped its authority, and deposits must be refunded.  

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Read more by Marc on his site Marc to Market.

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