USD: A good day in global equity markets did not generate much selling pressure on the safe-haven dollar yesterday, partly thanks to EUR/USD breaking below some key technicals. Equity futures point at another good open today, and the dollar has been marginally higher in the Asian session. On the domestic side, Biden’s $1.9tn plan may be set to benefit from a fast-track process in the Senate that will increase the chances of securing Congress approval. Positive developments on this side may put a floor below risk assets, with some focus however remaining on highly volatile/retail-driven stocks. On the data front, ADP employment numbers for January will start directing expectations ahead of Friday’s non-farm payrolls. Market consensus estimates a net increase of around 100k. January’s services ISM, also released today, is expected to edge lower. Recent USD resilience to improving sentiment may start to fade today if equities continue to grind higher.
CAD: The CAD was a rare out-performer yesterday, reflecting firm crude oil prices and the pro-risk mood apparent across global stocks. Spreads were little changed despite focus on the better Canadian GDP data Friday and speculation that the stronger trends could prompt the BoC to withdraw policy accommodation sooner than perhaps markets are expecting. This week’s gains in equities and crude oil have limited the topside in USD/CAD to 1.2870. Support is located at 1.2738, with resistance at 1.2839.
EUR: EUR/USD broke below the 1.2050 support during yesterday’s session but found some support in the evening following the news that Mario Draghi may become the next Prime Minister in Italy. The Italian President will meet Draghi today to give him a formal mandate. The move is directly aimed at solving the political instability in Italy as Draghi is believed to be able to garner a larger and more stable majority in Parliament. Draghi’s acceptance of a mandate and indications of a majority backing him will likely be welcomed by markets and may give some further support to European assets. That said, the recent political turmoil in Italy has not generated any risk premia build-up on EUR/USD: upside potential from the end of the government crisis may also be somewhat contained. Still, when paired with some softening USD momentum, it could at least help EUR/USD recover and consolidate in the upper half of the 1.20-1.21 region.
GBP: It’s a quiet day in the UK as investors anxiously await tomorrow’s Bank of England meeting. We retain a general bullish bias on GBP thanks to the UK’s vaccination primacy and our view that the BoE will steer away from negative rates this year.
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