Fed to Raise Rates “No Time Soon”, Stimulus Package in Focus
Fed Chair Jerome Powell stated that the time to raise rates is “no time soon”, and that neither is it the time to start talking about an exit [from QE]. Not that there were such expectations, given the bond market recently signalled expectations for a 25bps interest rate hike in September 2023. Besides, Powell also said the US is a long way from maximum employment, and a strong labour market is what they are more focussed on at present. So, what does this likely mean? Lower interest rates for longer in the US and rest of the developed world, and asset price inflation.
US weekly jobless claims surged to a 5-month high and raises the risk of further job losses in January, which places additional pressure on the incoming Biden administration to deliver an adequate relief package. Joe Biden is expected to release his COVID-19 relief package shortly, with some reports claiming it could be up to $1.9 trillion. US treasuries rose on the back of the news with the 10-year yield hitting a fresh 10-month high.
China’s exports exceeded expectations by rising 18.1% YoY versus 15% forecast, showing that global demand remains resilient despite the pandemic. Imports also outperformed expectations at 6.5% YoY versus 5% expected, which saw the trade balance surplus rise to USD $78.17 billion.
Again, most of the major market we track remained well within their ATR’s (average daily ranges). The US dollar index closed lower although remains above 90.00 and it was the weakest major. Bitcoin tested 40k again yet rolled over near the end of the session, presumably triggered by profit taking near a key level. Agricultural commodities were mostly higher, gold closed effectively flat and oil prices recouped most of Wednesday’s losses and trade just beneath multi-month highs.
Today’s Calendar Events (Times are GMT+11 Sydney)
Whilst there is a host of US data in the early hours of tomorrow, its more likely to be the size of Joe Biden’s fiscal stimulus package which dictates sentiment at the US open. With reports it could be as large as $1.9 trillion, then anything short of this could spark a bout of risk-off and stock markets could move lower. Yet if he delivers a package or exceeds them relative to expectations, the party on Wall Street could go on.
AUD/JPY: Consolidating Below Key Resistance
The daily chart on AUD/JPY remains within a strong uptrend, which began back in March 2020. Whilst the 10 and 20-day eMA’s have provided dynamic support since mid-November, the rally has failed to re-re-test the 10-day average which shows bullish momentum is increasing.
That said, prices are now consolidating near the April 2019 high of 80.72. But if prices can break above this key level, there is no major resistance on the weekly chart until 84.00.
The consolidation is also anchored to the monthly R1 pivot, but if momentum picks up then the monthly MR2 level can provide an interim target around 81.80. But take note of yesterday’s bullish candle as it suggests bulls are trying to break higher out of compression.
- A break above last week’s high assumes bullish continuation.
- A break above last week’s high brings the 84 handle into focus, although monthly R3 can be used as an interim target.
EUR/AUD: Closes at a 2-Year Low
EUR/AUD closed the overnight session at its lowest level since December 2018, with a break of 1.5683 support. The cross remains within an established downtrend and the next major support level is all the way down at 1.5346.
However, given that price action has tested its lowest bollinger band and RSI has reached oversold (below 30) on the daily and hour-hour chart, we would prefer to see a minor pullback towards 1.5683 resistance before reconsidering shorts. That said, intraday traders should take note that the hourly chart has seen a 3-bar retracement, so it could be considered for bearish swing trades on lower timeframes.
- Bears could wait for a retracement towards the 1.5683 resistance level / monthly S1 before considering shorts.
- A break above 1.5638 invalidates the bearish bias.
- Initial target is just above Monthly S2 (1.5450).
NZD/USD: 0.7420 is Key
Like AUD/USD, the Kiwi dollar has enjoyed a strong rally against the weaker US dollar. Yet after reaching its highest level since April 2018 last week, prices have now retraced from their multi-month highs.
Switching to the hourly chart reveals a couple of clues that prices may break higher. Overnight, bullish momentum broke the descending retracement line. Furthermore, a higher low has formed to show demand could be building. And, if prices break above 0.7240 resistance, it could confirm its next leg higher.
- A break above 0.7240 resistance confirms a bullish breakout and brings 0.7300 – 0.7310 into focus.
- Should resistance hold and bearish momentum return, a break beneath the rising trendline warns of a deeper and more complex correction, counter to the dominant bullish trend.