Biden Sworn in as President, Risk Appetite Weighs on USD

Delivering a message of unity, Joe Biden called for an end to ‘this uncivil war’…

Joe Biden was sworn in as President of the United States during a peaceful inauguration, which went smoothly without interruption. Kamilla Harris was also sworn is as Vice-President, making her the first female in US history to carry the title.

Delivering a message of unity, Joe Biden called for an end to “this uncivil war” during his 21-minute speech before heading to the White House for the first time as President. There, he swiftly began signing a large quantity of executive orders, aimed at reversing some of Trump’s more controversial polices.

Just some examples included ending the travel-ban on some Muslim-majority countries, re-joining the Paris climate accord, mandating masks for all federal properties and revoking the Keystone XL oil pipeline permit.

Wall Street breathed a sigh of relief and pushed equity indices to fresh record highs. The S&P 500 (US500) rallied 1.4% by the close, having used the 20-day eMA as a springboard on Tuesday. The Nasdaq (USTEC) was the strongest major index, finishing 2.3% higher by the close whilst the Russell 2000 (mid-cap stocks) posted a modest 0.4% gain.

Appetite for Risk Weighs on the Dollar

The usual inverted correlation with the USD dollar held true as indices pushed to fresh highs…

The usual inverted correlation with the USD dollar held true as indices pushed to fresh highs whilst USD closed lower against all majors, except the Euro. As the US dollar index (DXY) is 57% weighted towards the euro, DXY produced an indecision candle (doji) and remains trapped between the 20 and 50-day eMA on the daily chart.

AUD/USD held above its 20-day eMA and closed to a 3-day high and appears set to break to new highs in early Asian trade. USD/JPY produced a bearish engulfing candle on the daily chart with the 50-day eMA and bearish trendline from the March high providing solid resistance. Our bias remains bearish below 104.

GBP/USD enjoyed a strong start to the session with cable breaking back above 1.3700, to its highest level since April 2018. Yet bulls failed to keep hold of gains to see GBP/USD close with a bearish pinbar on the daily chart at the highs, which warns of another dip lower from its highs.

CAD Bears Short Cover as BOC Hold Rates

BOC’s governor Tiff Macklem said the current stimulus was adequate, when asked if they considered a rate cut today

The Bank of Canada (BOC) kept monetary policy unchanged overnight, with interest rates at 0.25% and their quantitative easing (QE) program at $4 billion per week. Despite strong economic momentum through to late 2020, BOC cited a “serious setback” due to the resurgence of COVID-19 cases and lockdowns. Expectations are for negative growth in Q1 but, if restrictions are lifted soon, BOC expect to see growth rebounding in Q2.

During a press conference, BOC’s governor Tiff Macklem said the current stimulus was adequate, when asked if they considered a rate cut today. Although he also added they could consider a micro rate cut in future (which we estimate to be -0.10 bps), among “other options”.

BOC’s decision to not cut interest rates resulted in a strong bullish reaction for the Canadian dollar as bears short covered. USD/CAD broke beneath key support to trade at its lowest level since April 2018, EUR/CAD closed firmly beneath its 200-day eMA and to its lowest level since July 2020. The Australian and New Zealand dollar also closed lower against the Canadian dollar yet remain above their 20-day and 50-day eMA respectively.

Ethereum Continues to Outperform

…when too many people see the same technical pattern, it has a tendency to go the opposite way to consensus.

Whilst it was a bearish day for crypto majors overnight, ethereum (ETHUSD) remained the hot favourite after hitting a fresh record high on Tuesday. Sure, it retraced most of Tuesday’s gains, but it appears to have found support at Tuesday’s low before rebounding. Compare this to bitcoin (BTCUSD), which remains within a multi-day triangle, traders clearly have their favourite this week.

A prominent swing low (and higher high) has formed on Ethereum’s hourly chart at 1232, and bullish momentum is now eyeing up a retest of its record highs. Another higher low has also formed around 1300 and prices are now comfortably back above its 50-hour eMA.

As for bitcoin, its next directional move could be in either direction. Having seen plenty of classic triangles drawn on bitcoin this past week with expectation for it to break higher, we feel inclined to suggest it could break from its daily triangle lower before it resumes it bullish trend. And why is that? Because when too many people see the same technical pattern, it has a tendency to go the opposite way to consensus.