USD: The announcement of a $1.9trn American Rescue Plan – to be put to Congress by the end of March – has so far had little impact on markets. US equity futures are off 0.7%, 10-year Treasury yields down 2bp and the dollar fractionally better bid. The support package aims to address the worsening US labour market and investors are far from concluding that this package brings Fed tightening any nearer. On that subject, Fed Chair Powell did a good job yesterday of pouring cold water on tapering speculation, arguing that now is not the time to have this discussion. He also prepped for a 2Q rise in inflation (on base effects) which is unlikely to un-nerve the Fed. For today, the focus will be on US data on the form of retail sales and industrial production for December and consumer confidence for January. Lockdowns are expected to keep the consumer under pressure.
CAD: The CAD is modestly higher on the session but is holding within recent ranges and lagging its G10 commodity peers again. Energy prices remain buoyant (and the broader commodity complex’s gains in the past few months remains clearly supportive of the CAD’s gains as domestic terms of trade have improved. Canadian existing home sales are expected to record yet another strong gain in December (cons. 6.0%m/m). Early reports from local real estate boards showed that Canadians’ strong desire to own a home was not restrained by virus resurgence. A daily close below 1.2630 would amplify the recent loss of bullish short-term momentum in USD/CAD, shifting the focus down to 1.2528 thereafter.
EUR: The Euro has under-performed this week, with the ECB’s trade-weighted EUR now off 1.2% from its recent high. Italian politics have no doubt played a role here. While we doubt events in Rome will prove a knock-out blow to the EUR, the issue looks unlikely to be resolved today. Here the Italian PM is due to speak to parliament next Monday/Tuesday to outline his plans for government. The dollar environment does not look particularly strong right now, yet EUR/USD could make a brief foray to next support in the 1.2065 area.
GBP: That November UK GDP was slightly better than expected (-2.6% MoM vs. -4.6% consensus) has provided a little support to GBP – especially at a time when the EUR is soft. Being short GBP on the relative EU/UK vaccination roll-out story is quite a popular trade right now – but the massive UK trade deficit (£16bn in November) suggests holding onto GBP longs will not be easy.