• NZD/USD broke above a key downtrend on Thursday, though is back of 0.7240 highs now.
  • The US dollar weakened predominantly against its more risk-sensitive G10 peers on Thursday, including the kiwi.
  • The pair now appears to be in the early stages of forming an ascending triangle.

NZD/USD has been somewhat on the back foot in recent trade, dropping back from close to session highs in the upper 0.7230s to current levels around 0.7220 and remaining well supported above 0.7200. The pair closed Thursday FX trade with decent gains amid a broadly softer US dollar, rising 0.6% or 46 pips.

The US dollar weakened predominantly against its more risk-sensitive G10 peers on Thursday in the run-up to comments from the Chairman of the Federal Reserve Jerome Powell, who largely stuck to the usual dovish script on Fed policy and on the topic of asset purchase programme tapering, pushed back against the notion that this is going to happen, or indeed should be talked about, soon.

Soft weekly jobless claims data out of the US might have also contributed to weakness in the currency; in the week ending on the 9 January, 965K American signed up for unemployment insurance, a significant spike from the week prior’s 784K reading and well above expectations for 795K. The numbers show that after a rough December for the US labour market (as indicated in last week’s official NFP report), weakness has spilled over to January, which is unsurprising given the rate at which Covid-19 is spreading in the country is yet to relent and many industries (namely hospitality and leisure) are still locked down.

Market participants await to hear from incoming US President Joe Biden on the fiscal stimulus plan he will push for once he gets into office, though many details have now been released.

Biden stimulus plan

Much of the details of this plan have already been leaked. Reuters recently reported that Biden is calling for a $1.9T Covid-19 rescue package, which will include more than $400B to directly bolster the Covid-19 response, $1T in direct relief for household and $440B for businesses and the most-affected communities.

Biden is calling to top up the latest $600 in direct stimulus payments by a further $1400 and also wants to raise the supplemental unemployment benefit to $400 per week from its current $300 per week levels, as well as extending the payments until December. Biden is also calling for a $15/hour minimum wage to be implemented.

NZD/USD breaks above key downtrend, now in ascending triangle

NZD/USD broke above key trendline resistance on Thursday; the pair broke above a downtrend linking the 6, 8 and 13 January highs to rally back to match the previous weekly high at 0.7240. The pair has now retraced for a retest of this downtrend and it is holding up as support for now.

Having set a double top at 0.7240, the pair now appears to be in the early stages of forming an ascending triangle; to the downside, an uptrend links this week’s lows and to the upside, there is, of course, this week’s double top at 0.7240. Ascending triangles typically break to the upside and, if this is the case, a gradual move back towards recent 2021 highs above the 0.7300s.

NZD/USD hourly chart

Here is what you need to know Monday, January 15th 2021:

  • The comeback in the US dollar remains the focus in the forex space for the start of the year. On Thursday, the greenback printed a fresh high to 90.57 but dropped to a low of 90.07 when Federal Reserve’s Chair, Jerome Powell, said that it was too early to talk about tapering.
  • Long-end US Treasuries sold off in the afternoon as well after Powell’s speech. The 10-year and 30-year yields were ending 4.1bp and 5.2bp higher, respectively.
  • Investors were possibly positioning for Biden’s fiscal stimulus announcement (expected at $1.9tn) later in the day, 7.15pm (0015GMT).
  • Hopes of higher government spending by President-elect Joe Biden’s incoming administration and a vaccine plan has led to a rise in US Treasury yields, supporting the greenback.
  • The greenback has also benefitted from expectations of a continued economic recovery in the United States while countries in Europe resort to lockdowns to fend off a second COVID-19 wave.
  • Meanwhile, forex markets traded sideways with modest changes on the day. The DXY was 0.2% lower while the antipodean currencies were stronger with AUD and NZD ending 0.7% and 0.8% higher, respectively. CAD was 0.5% higher.
  • EURUSD struggled to maintain the bid into 1.22, falling to a low of 1.2111. 
  •  The S&P 500 was up 0.2%, the Euro Stoxx 50 was up 0.7% and the FTSE 100 was up 0.8%. WTI firmed 1.1% to $53.5/bbl. Gold added 0.6% to $1,850.1/oz.
  • Cryptocurrencies were capped with BTC falling from 40,112.78 to a low of 38,200.
  • Coming up, Watch Live: $1.9 trillion plan to be presented by Biden

DXY technical analysis

  • USD/CAD has flatlined in recent trade around 1.2650 amid a lack of fresh fundamental catalysts.
  • Market participants await to hear what stimulus package incoming US President Biden will pursue, though details have been leaked.

USD/CAD has flatlined in recent trade around 1.2650 amid a lack of fresh fundamental catalysts as market participants await to hear what kind of stimulus package incoming US President Joe Biden will push for once he gets into office, though many details have now been released.

The pair closed Thursday FX trade with 50 pip losses on the day, having dropped from highs around the 1.2700 mark in the lead up too and during comments from the Chairman of the Federal Reserve Jerome Powell, who largely stuck to the usual dovish script on Fed policy and on the topic of asset purchase programme tapering, pushed back against the notion that this is going to happen, or indeed should be talked about, soon.

Soft weekly jobless claims data out of the US might have also contributed to weakness in the currency; in the week ending on the 9 January, 965K American signed up for unemployment insurance, a significant spike from the week prior’s 784K reading and well above expectations for 795K. The numbers show that after a rough December for the US labour market (as indicated in last week’s official NFP report), weakness has spilled over to January, which is unsurprising given the rate at which Covid-19 is spreading in the country is yet to relent and many industries (namely hospitality and leisure) are still locked down.

On the loonie and its recent outperformance, TD Securities explain that export-oriented economies, such as those in Asia, “that are goods-intensive have tended to see their currencies outperform… CAD is getting pulled along for the ride.”

Biden stimulus plan

Much of the details of this plan have already been leaked. Reuters recently reported that Biden is calling for a $1.9T Covid-19 rescue package, which will include more than $400B to directly bolster the Covid-19 response, $1T in direct relief for household and $440B for businesses and the most-affected communities.

Biden is calling to top up the latest $600 in direct stimulus payments by a further $1400 and also wants to raise the supplemental unemployment benefit to $400 per week from its current $300 per week levels, as well as extending the payments until December. Biden is also calling for a $15/hour minimum wage to be implemented.

USD/CAD continues lower within bearish trend channel

USD/CAD continues to move lower within a bearish trend channel; to the downside, the downtrend that has been acting as support links the 8 October, 9 November and mid-December lows. To the upside, the downtrend that has been acting as resistance links the 13 November, 21 December and 11 January highs. At present, USD/CAD trades right in the middle of this trend line and very close to multi-year lows. A gradual grind lower towards 1.2600 then 1.2500 seems likely.

USD/CAD daily chart

El EUR/USD ha roto por debajo del soporte clave en torno a 1.2130, volviendo la atención rápidamente a una posible prueba de soportes clave en torno a 1.2060, informa Ned Rumpeltin, director europeo de estrategia cambiaria de TD Securities.

“El par ahora parece estar a una corta distancia de una prueba de los mínimos de la semana justo por encima de 1.2130. Hemos visto surgir un buen soporte alrededor de ese pivote desde mediados de diciembre, por lo que una clara ruptura a la baja se consideraría un evento notable”.

“Es de esperar que surjan algunas ofertas alrededor de 1.2100/05, pero nuestra atención cambiaría rápidamente a cómo se comportará el par si logramos bajar hacia el siguiente soporte clave en 1.2060. También observamos que 1.2064 es el nivel de retroceso de Fibonacci del 38.2% del rango de negociación vigente desde los mínimos de principios de noviembre. La DMA de 55 acecha justo por debajo en 1.2044 “.

The New York Times has reported that the US President-elect, Joe Biden, will deliver a $1.9 trillion plan to the nation Thursday evening. 

As part of the covid package, Biden’s $2,000 stimulus checks will “come in the form of additional $1,400 stimulus checks, topping up the $600 checks that Congress approved in December,” the NYT wrote.

Outline of the plan

  • Plan will include $2000 direct payments.
  • Includes more vaccines and virus testing.
  • Will include aid for state and local governments.
  • An extension of supplemental federal unemployment benefits.
  • More help for renters.
  • Money for schools to open.

WATCH LIVE: Biden to announce COVID-19 economic recovery plan

Biden hopes his multipronged strategy, to be detailed in a Thursday evening speech, will put the country on the path to recovery by the end of his first 100 days.

“It’s going to be hard,” Biden said Monday after he got his second vaccine shot. “It’s not going to be easy. But we can get it done.”

Next Wednesday, when Biden will be sworn in as president, marks the one-year anniversary of the first confirmed case of COVID-19 in the United States.

Market implications

US stocks edged lower Thursday afternoon as investors awaited details of the incoming Democrat administration’s plans for a fresh coronavirus relief package.

The Dow Jones Industrial Average pared earlier gains, falling about 0.1%. The S&P 500 dropped 0.2%, while the Nasdaq Composite hovered around flat.

The markets are counting on additional stimulus to help the economy recoup wide-ranging losses stemming from the coronavirus pandemic and restrictions put in place to fight it.

The US dollar is correcting higher as US yields run to the highest levels since March 2020 while investors bet on longer-term stronger economic growth and inflation. 

  • USD/JPY saw downside as a function of USD weakness in the runup to comments from Fed Chair Powell.
  • The pair dropped below the 104.00 level before finding support above the weekly lows above 103.50.

USD/JPY saw downside as a function of USD weakness in the runup to comments from the Chairman of the US Federal Reserve Jerome Powell, dropping back beneath the 104.00 level to hit lows at 103.65. The pair found support ahead of Tuesday’s 103.537 low and has since rebounded into the 103.70s.

Looking ahead, Bank of Japan Governor Haruhiko Kuroda is slated to speak during Friday’s Asia Pacific session and weekly foreign investment data will be released. However, USD/JPY is set to remain firmly focused on global risk appetite and factors driving the USD side of the equation.

Powell down, Biden to go

USD remains on the back foot in the aftermath of Powell’s comments; the Fed Chair reiterated the bank’s dovish stance on policy and, with regards to the bank asset purchase programme (the tapering of which has been a hot topic as far as markets are concerned as of late), said; the Fed needs to be careful about how it communicates about asset purchases, that any tapering is still a long way off and when the Fed does finally decide it wants to move towards tapering off asset purchases, this will be flagged well in advance.

Broadly then, the US dollar has remained on the back foot and trader attention has now turned to the upcoming announcement from US President-elect Joe Biden, who is expected to unveil a $1.9T fiscal stimulus package plan, according to the latest reports. Separate reports suggest the plan will include new $2000 direct payments, as well as significant new child benefits. For any fiscal stimulus bill to be able to pass the Senate without being filibustered it needs to get 60 votes, meaning 10 Republicans will have to vote in favour. Biden is said to want to make a deal with the Republicans, meaning this $1.9T number could significantly drop. However, there is an option to bypass any Republican filibuster attempt by pivoting to a parliamentary process called budget reconciliation, which means they would only require 51 votes (which the Senate Democrats have when Vice President-elect’s vote is counted on).

USD/JPY key levels

 

  • Los mercados de valores de EE.UU. se vieron sometidos a presiones vendedoras en el cierre, en medio de lo que parecía ser una toma de ganancias.
  • Los comentarios del presidente de la Fed, Jerome Powell, durante su participación en una conversación online de la Universidad de Princeton se apegaron mucho al guión.
  • La atención de los comerciantes se centran ahora en el próximo anuncio del presidente electo de Estados Unidos, Joe Biden.

Los mercados de valores de EE.UU. se vieron sometidos a presiones vendedoras en el cierre, en medio de lo que pareció ser un episodio de toma de ganancias (los tres principales índices estadounidenses de gran capitalización aún cotizan muy cerca de máximos históricos). El S&P 500 cerró un 0.3% a la baja y cayó ligeramente por debajo de 3800, el Nasdaq 100 cerró un 0.6% a la baja, retrocediendo más desde el nivel de 13.000 y por debajo de 12.900 y el Dow Jones Industrial Average cayó un 0.2% por debajo de 31.000.

Los operadores también tuvieron en cuenta que el aumento de los rendimientos de los bonos estadounidenses podría afectar a los mercados de valores; Los rendimientos estadounidenses a 10 años terminaron la sesión con un alza de 3.9 puntos básicos hasta el 1.127%. Los malos datos semanales de solicitudes de desempleo y las restricciones adicionales sobre la capacidad de los estadounidenses para invertir en empresas chinas a través de nuevas órdenes ejecutivas de la administración saliente de Trump también pesan sobre la confianza.

  • US equity markets came under selling pressure in the cash close, amid what appeared to be a bout of profit taking.
  • Fed Chair Jerome Powell’s comments during his participation in an online Princeton University conversation very much stuck to the script.
  • Trader attention has now turned to the upcoming announcement from US President-elect Joe Biden.

US equity markets came under selling pressure in the cash close, amid what appeared to be a bout of profit-taking (all three of the major large-cap US indices still trade very close to all-time highs). The S&P 500 closed 0.3% lower and dropped slightly below 3800, the Nasdaq 100 closed 0.6% lower, falling further back from the 13,00 level and below 12,900 and the Dow Jones Industrial Average dropped by 0.2% to below 31,000.

Traders also pointed to rising US bond yields as possibly weighing on the equity markets; US 10-year yields finished the session up 3.9bps to 1.127%. Bad weekly jobless claims data and further restrictions on the ability of Americans to invest in Chinese companies via further executive orders from the outgoing Trump administration are also being cited weighing on sentiment.

Jerome Powell, Chairman of the Federal Reserve spoke (more below). Nothing he said would have explicitly triggered any hawkish market reaction. Rather, bond yields might have been moving higher in anticipation of an incoming stimulus announcement from US President-elect Joe Biden (more below). Note that the Small Cap Russell 2000 surged 3.2%, seemingly continuing to derive support from hopes for stimulus that are set to disproportionately benefit small businesses.

Powell down, Biden incoming

Fed Chair Jerome Powell’s comments during his participation in an online Princeton University conversation very much stuck to the script. The Fed Chair reiterated the bank’s dovish stance on policy and, with regards to the bank asset purchase programme (the tapering of which has been a hot topic as far as markets are concerned as of late), said; the Fed needs to be careful about how it communicates about asset purchases, that any tapering is still a long way off and when the Fed does finally decide it wants to move towards tapering off asset purchases, this will be flagged well in advance.

Trader attention has now turned to the upcoming announcement from US President-elect Joe Biden, who is expected to unveil a $1.9T fiscal stimulus package plan, according to the latest reports. Separate reports suggest the plan will include new $2000 direct payments, as well as significant new child benefits. For any fiscal stimulus bill to be able to pass the Senate without being filibustered it needs to get 60 votes, meaning 10 Republicans will have to vote in favour. Biden is said to want to make a deal with the Republicans, meaning this $1.9T number could significantly drop. However, there is an option to bypass any Republican filibuster attempt by pivoting to a parliamentary process called budget reconciliation, which means they would only require 51 votes (which the Senate Democrats have when Vice President-elect’s vote is counted on).