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Fundamental Analysis - Market Review 04 Feb 2021

Fundamental Analysis - Market Review 04 Feb 2021


EUR is showing ambiguous trading dynamics against USD during today’s Asian session, consolidating after a two-day downside rally that has led to renewed local lows for the instrument since December 1. The pressure on EUR is increasing as quarantine restrictions persist in many European countries, as well as amid the ambiguous prospects for economic recovery in the region in early 2021. Meanwhile, the macroeconomic data from Europe published on Tuesday managed to help the “bulls” a little. Eurozone GDP in Q4 2020 decreased by 0.7% QoQ after growing by 12.5% QoQ last month. Analysts expected a decrease of 1.2% QoQ. In annual terms, the economic decline accelerated from –4.3% YoY to –5.1% YoY, which again turned out to be better than the market forecasts at the level of –5.4% YoY. Today, investors are focused on the European statistics on business activity and consumer price levels for January. 


GBP is showing multidirectional dynamics in pairing with USD in trading this morning session, consolidating near 1.3660. Noticeable pressure on GBP is exerted by rather strong positions on USD, which is strengthening as the negotiation process develops around a new stimulus package for the American economy in the amount of USD 1.9 trillion. The day before, US President Joe Biden said he would continue to defend the original plan, despite criticism from Republicans, who consider the new stimulus package too expensive. The macroeconomic statistics from the UK published on Tuesday were disappointing. Nationwide Housing Prices Index in January showed a decrease of 0.3% MoM after an increase by 0.9% MoM in the previous month. Analysts had expected positive dynamics to remain at +0.3% MoM.


NZD is significantly strengthening against USD in trading this morning session, testing the level of 0.7220 for a breakout. Significant support for the instrument is provided by strong macroeconomic statistics on the labor market in New Zealand, released this morning. The Unemployment Rate in the country in Q4 2020 fell sharply from 5.3% to 4.9%, while the forecasts assumed its further growth to 5.6%. Employment Change for the same period rose 0.6% after falling 0.8% over the previous period and a zero forecast by analysts. At the same time, the Labor Cost Index in Q4 showed only moderate growth of 0.5% QoQ and 1.5% YoY after growing by 0.4% QoQ and 1.6% YoY in the previous quarter.


USD maintains an uptrend in trading against JPY, updating local highs from November 12, 2020. Now USD has added about 0.04% and is testing strong resistance at the psychological level of 105.00. It is supported by the prospects for the early approval of a new stimulus package for the national economy in the amount of USD 1.9 trillion, which is likely to help the country recover to pre-crisis levels as early as 2021 (if the epidemiological situation in the country and the world does not begin to deteriorate again). Macroeconomic statistics from Japan released on Wednesday puts moderate pressure on JPY. Jibun Bank Services PMI for January fell from 47.7 to 46.1 points, which was worse than average forecasts.


Gold prices are showing moderate gains during today’s Asian session, correcting after a strong decline the day before, which was triggered by some progress in negotiations on a new stimulus package for the US economy. In addition, USD was supported by a decrease in demand for safe assets in response to an improvement in the dynamics of the incidence of coronavirus in the world. Today, investors will be focused on macroeconomic statistics from the US on the levels of business activity from Markit and ISM in January. In addition, much attention will be paid to the publication of the January ADP Employment Change report, which will precede Friday’s data on the US labor market. Forecasts suggest that the ADP report will reflect an increase in private sector employment of 45K new jobs after a decline of 123K in the previous month. 

Bank of England preview: what to expect 

The Bank of England is in focus today, with the latest interest rate decision to be made at 1200 GMT, followed by a speech by the central bank’s governor Andrew Bailey at 1230 GMT.

 The BoE is not expected to adjust its policy considering it raised QE purchases in November, although the health of the UK economy will be in question considering the country has re-entered a national lockdown since then. That will push attention to the bank’s outlook and the prospects for the economic recovery this year, while investors will also be closely watching the bank’s attitude toward the possibility of introducing negative interest rates.

 UK to trial effectiveness of combining vaccines 

The UK is today launching a trial to examine whether people could receive different coronavirus vaccines when they get their two doses of the jabs. It will assess the response in people having one jab of the vaccine developed by Pfizer and another by AstraZeneca.

 If successful, it could provide some major flexibility as countries roll-out vaccines by allowing them to mix-and-match the two vaccines rather than committing people to have two doses of just one vaccine. 

Recruitment for the trial will begin today and will involve around 800 participants and initial data is expected sometime in June. That trial is being launched as the UK vaccinated its 10 millionth person yesterday. UK to unveil route-map out of lockdown on February 22

 UK prime minister Boris Johnson will unveil the country’s route-map to easing restrictions and eventually ending lockdown on February 22. Johnson said the government ‘will be setting out in as much detail as we can about where we see the dates, what the timetable could be, the earliest dates by which we want to do what’. 

The prime minister, however, reiterated that getting pupils back into school was the main priority and that this would not happen until March 8 at the earliest, signalling that other restrictions will only be eased later in March at the earliest.

 Separately, the UK is also expected to chair a meeting of finance chiefs from the G7 nations on February 12 to discuss how to stage a global economic recovery form the pandemic this year. Chancellor Rishi Sunak and BoE governor Andrew Bailey will host the virtual meeting that will be attended by peers from the US, Japan, Germany, France, Italy and Canada, plus members from the European Central Bank.

EU rejects UK request to extend post-Brexit grace period

 The EU has rejected a request from the UK to extend a grace period on checks being made on goods travelling between Northern Ireland and Britain, stating the Brexit deal struck late last year has all the tools needed to resolve the matter.

 UK cabinet minister Michael Gove wrote to the European Commission’s vice president, Maros Sefcovic, yesterday asking for a grace period applying to the transport of food between Northern Ireland and Britain be extended. A grace period of three months is already in place, but the UK now wants that pushed back to 2023.

 Sefcovic and Gove spoke about the matter yesterday but failed to come to an agreement.

 ‘I really think that if all the flexibilities we put on the table and into the (Northern Ireland) Protocol would be used to the maximum, that all of the issues which we are discussing today would be really resolved,’ said Sefcovic.

 Talks are expected to continue next week and prime minister Boris Johnson has said he wants the matter resolved by the end of March – when the existing grace period is due to end.

 Forex: Sterling in focus ahead of BoE meeting

 Sterling is in focus today ahead of the BoE meeting, while the dollar is continuing to strengthen – particularly against the euro – as optimism grows that the US can recover quicker under president Joe Biden’s accelerated vaccination programme, while sentiment in Europe is still under strain thanks to the bloc’s slow start to vaccination.

 EUR/GBP was trading at 0.88282 this morning, up 0.1% from 0.88193 at the end of play yesterday.

EUR/USD was down 0.2% this morning at 1.20123 – its lowest level since the start of December – from 1.20357 when markets closed yesterday. Meanwhile, GBP/USD was down 0.3% in early trade at 1.36084 – a two-week low – from 1.36434 when markets closed yesterday. 

Commodities: Oil prices continue to find higher ground

 Brent traded at $55.85 a barrel this morning – reaching a new 11-month high – from $58.63 yesterday, while WTI hit its highest level in over a year at $56.10 a barrel from $55.90 yesterday.

 OPEC+ said it would stick to its output policy at a meeting on Wednesday, signalling that producers are satisfied with the supply cuts agreed earlier this year. That, combined with the fact inventories are dwindling, has supported oil prices.

 That means supplies will hold steady this month and that Saudi Arabia, by far the biggest producer in the group, will cut 1 million barrels a day from its output this month to build on the cuts it made in January. Reuters reported it had seen one document that suggests the group will keep the oil market in deficit throughout the whole of 2021.

 ‘While economic prospects and oil demand would remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand’ OPEC said in a statement

 Euro suffers losses. Forecast as of 04 Feb 2021

 The slower the vaccination campaign progresses, the more likely are the lockdowns to continue and the recession to start in the euro-area. Besides, the Eurosceptics use the authorities’ failures for their purposes, which presses down the EURUSD. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

 Donald Trump lost the presidential election due to the pandemic. At first, the White House did not recognize the threat and then very slowly closed the economy for a lockdown. In the first wave of COVID-19, the EU acted much more efficiently, laying the foundation for the EURUSD uptrend. However, the slow vaccination in the euro area presses down the euro bulls and the EU governments. Eurosceptics go ahead, and the rise in political risks contributes to the euro fall.

Marine Le Pen appears to be almost the only serious opponent of Emmanuel Macron in France’s 2022 presidential elections. Their confrontation, which ended in the victory of the current head of state, triggered the euro rally in 2017. Nobody knows what will happen this time. Nor is there any certainty that Mario Draghi will save Italy. Yes, the ex-president of the ECB is most likely the best person for the worst job. Yes, financial markets were optimistic about his willingness to manage Italy’s political crisis, which is evident from a narrower yield spread between Italian and German bonds. Still, it will be complicated for anyone to bring order to the chaos in which Rome lives today.

According to Bloomberg research, the euro-area economy is currently operating at 95% of its pre-pandemic capacity due to lockdowns. This is the equivalent of losing €12 billion a week. The euro area is several weeks behind the US in vaccination. The US will soon return to full-fledged work while the eurozone will maintain existing restrictions, which will cost it € 500-1000 billion within one or two months. Thus, the vaccination campaign directly impacts the economy and allows Eurosceptics to go ahead, which puts pressure on the euro. There is a clear divergence in economic growth, which is reflected in the different rates of the US and euro-area PMIs.

I don’t think that the surge of the euro-area inflation from -0.3% to 0.9% in January will be the reason for the ECB to pull back on the pandemic emergency purchase program. The rise in consumer prices resulted from temporary factors, and the Governing Council is likely to ignore it.

 The US dollar is supported by the Treasury yield growth ahead of the auctions. In the week ending Feb 14, the Treasury plans to place 3-year bills, 10-year and 30-year bonds totaling $ 126 billion. The interest rates on the securities are rising, and investors remember that the growth of Treasury yields in January resulted in the greenback strengthening.

Weekly EURUSD Trading Plan:

The current Forex sentiment makes banks abandon bullish forecasts for the euro. Nomura exits EURUSD longs, and Deutsche Bank says the pair can go down to 1.18. It is still relevant to hold down shorts entered at level 1.208 and enter short-term sell trades at least until the EURUSD goes up above the indicated level.

 EURUSD current rate in the Forex market:

 EURUSD = 1.20098

Sell: 1.20095

Buy: 1.20098

Mood: 58%

1-day change: -0.25 (-0.00306%)

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