The dollar index reversed some of its losses in European trading on Wednesday, having fallen as low as 89.21; EUR/USD retreated on the high, having earlier reached 1.2349; GBP/USD fell as low as 1.3581; AUD/USD pared gains and was trading around 0.7780. Markets are focused today on Georgia runoff results…
In news, FX168 previously reported that, according to Bloomberg, U.S. Democrat Jon Ossoff claimed victory in the Georgia Senate runoff election, with votes still being counted. In addition, on January 6, local time, a joint session of the U.S. Congress will formally count the electoral votes, certify the Electoral College votes and declare the official results of the presidential election.
Some analysis pointed out that the dollar rebound behind, because the United States bond yields strong pull up. The dollar index closed in negative territory for the previous two days as investors anticipated more stimulus measures and Democrats sought to retain their majority in the Senate. Reflecting the optimism, the main European stock index rose 0.9 per cent to 2.35 per cent, while 10-year US Treasury yields rose almost 7 per cent. Analyses believe that the US bond yields rise, is also the reason for today’s sudden big plunge in gold prices.
Regarding small nonfarm payrolls, the U.S. ADP payrolls fell 123,000 in December, the first negative reading since April 2020.
Vice President, ADP Employment Data: As the impact of the outbreak on the labor market intensifies, December saw the first decline in employment since April 2020. Job losses were concentrated in the retail, leisure and hospitality sectors.
Zerohedge commented that the December ADP report showed payrolls at both large and small companies were falling, while mid-sized companies posted gains. Employment in the service sector fell the most. The market is expected to revise down the December non-farm payrolls estimate after the ADP release.
USD: The dollar index fell for a fourth straight session on Wednesday, reaching the 89.20 area, or April 2018 low, while opening the door for a challenge at 89.00.
Risk appetite remains the only beneficiary of market participants’ current optimism, especially after speculation mounted of a Democratic victory in Georgia and the increasing likelihood of additional stimulus from the Biden administration.
Technically, pessimism around the dollar in early 2021 remains good, with the DXY falling to a new low in the 89.20 area on Wednesday. The outlook for the dollar remains negative, with further declines in the DXY challenging the 89.00 support level before heading towards the March 2018 low of 88.94.
The downward pressure on the DXY is expected to ease after a break above the weekly high of 91.00 area (Dec 21).
EUR: EUR/USD regained further momentum and broke through the key resistance of 1.23 on Wednesday. Against this backdrop, EURUSD is now expected to approach the 1.2400 mark in the near term. A break above this level looks towards 1.2413(April 2018 high), then 1.2476(March 2018 high).
EURUSD, meanwhile, is poised for further gains as long as it stays above the key 200-day SMA of 1.1551 intraday. While the market will continue to be bullish, the proximity to overbought areas may trigger an occasional pullback. The pullback is expected to hit initial support at the weekly low of 1.2129(Dec 21).
GBP: GBP/USD quickly reversed intraday losses on Wednesday, falling below 1.3600 and gaining ground for a second straight session. It was also the fifth day of gains in the previous six sessions, driven only by some fresh selling around the dollar.
Bets on a Democratic victory increased as investors awaited the results of a runoff US Senate election in Georgia, raising expectations of more US financial aid. The Democratic-led Senate will have a major impact on the ability of incoming Joe Biden to push through his preferred economic policies.
Beyond that, hopes for a strong global economic recovery in 2021 continue to underpin the underlying upbeat tone in financial markets. This, along with speculation that the Federal Reserve will keep interest rates low for an extended period, has weakened the dollar’s safe-haven status and provided some further support to sterling against the dollar.
Worries about the economic impact of Britain’s third national blockade did not seem to bother the bulls at all. The blockade could increase the likelihood that the Bank of England will ease policy further. However, USD price dynamics remained the only driver of GBPUSD’s positive intraday moves.
JPY: After hitting multi-month lows around 102.60, USDJPY recovered modestly on Wednesday and has now regained some of the previous day’s losses. This rise may be entirely due to some short covering and is likely to remain limited given the general dollar selling bias.
Bets are growing on a Democratic victory in a key US Senate runoff in Georgia, raising expectations of more US fiscal stimulus. The Democratic-led Senate is expected to vote against incoming President Joe Biden. Joe Biden’s ability to push through his preferred economic policies will make a big difference.
At the same time, expectations of more government borrowing continued to push the yield on the benchmark 10-year Treasury note back above 1.0% for the first time since March. This, along with hopes of a strong economic recovery in 2021 and an underlying bullish tone in financial markets, has provided a modest boost to USDJPY.
On the other hand, the dollar fell to near 2-1/2 year lows on the prospect of more U.S. financial aid and speculation that the Federal Reserve will keep interest rates low for an extended period. As such, the key focus will remain on the minutes of the latest FOMC monetary policy meeting, released on Wednesday.
This makes it prudent to wait for some strong follow-on buying before confirming that USDJPY has bottomed in the near term and setting the stage for any further rally.