Note: Market efficiency is clearly being tested currently with the movements in GameStop and the mechanisms involved. We are fully aware of it and as yet it has not filtered into FX.
But there is growing evidence that the next target could be cryptocurrencies so please be mindful of possible volatility.
Points of the week:
- USD reversed its Fed-induced longs in just 24 hours as ‘risk on’ improved again on better-than-expected jobless claims and the final read on US GDP for 2020. Running through the data GDP rose 4.0% (annualised) in the final quarter of 2020 a drop from the eye-watering record in Q3 of 33.4% but still solid and was in line with expectations run by Refinitiv. Thing about GDP data though is that its retrospective, which is why the Fed’s prediction that 2021 GDP would be determined by the effectiveness of the vaccine and that growth was already starting to slow probably should have dominated the 24-hour data cycle, but ‘risk on’ remains robust and that risk off idea remains under wraps.
EUR/USD bounced from $1.2090 to $1.2140 over this 24-cycle, GBP/USD followed suit up from $1.3640 to $1.3745 over the same period. The EUR is the interesting one here as the ECB is starting to signal its unease at its appreciation. This wasn’t enough to hit the pair, but EUR/GBP is plumbing lows not seen since May 2020 on this news and probably enhanced by the UK’s accelerated vaccine program compared to Europe.
- US private consumption was up 2.5% a slight miss on estimates and well down on the prior read of 41.0%. Core PCE rose 1.4% quarter on quarter beating estimates. The interesting point here is that ‘inflation bogeyman’ just won’t go away and this data put a rocket under US yields with the 10-year yield adding 8 basis points from sub-1% (0.99%) to 1.07%. It’s a really interesting one for the USD long trade.
- What is also catching our eye from the ‘risk’ trade perspective is China’s moves on steel production. Its freezes of production are hitting iron ore causing it to plunge. Fe 62% iron ore for fell 2.38% while the 62% MySteel index shed over $9.50 to 156.10. These arestill strong prices, but the warnings are materialising.
- This has put the AUD/USD under real pressure hitting a 1-month low at $0.7592 before benefiting from the risk on trade on the US GDP trade pushing it back to $0.7695. But the steel story is a risk for the AUD no doubt.