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FX Macro themes for January 2021!

 


While the US Capitol was burning the markets kept on going up, reminding us that financial markets and the real world can be totally different at least for some time. And while Bitcoin screaming "Bubble" Yields are screaming "Inflation" (more below on what's that means for the dollar). A lot of interesting stuff for macro guys like me, but for now let's hope that 2021 will be a less dramatic year than 2020.

Macro themes for FX majors:

USD: Can rising US Yields save the Dollar?

My bearish outlook on the dollar going into H1 2021 is still intact due to lower real yields, and USD countercyclical behavior. recently we saw a spike in US 10 year treasury yields, breaching the 1% psychological level, who coincided with a small pullback in the EURUSD pair, the question is does rising US yields will limit the downside of the dollar? and the answer is simply NO. The reason for that is the countercyclical nature of the greenback, whenever Yields are rising on the back of expectation of synchronized growth and reflation that's tend to play against the dollar as we can see in the chart below. however, the markets positioning for a lower dollar are now extreme, hence we could see a sharp pullback, so technicals will play a major role in the next few weeks, watch for 1.25 resistance on the EURUSD.

 

GBP: Life after Brexit!

Over the last four years, the Brexit saga has dominated sterling price action, but I think now is the moment when the currency will start focusing more on its traditional domestic and global drivers. recently I was bullish on the pound on the back of expectation for a trade deal, but at the moment, I prefer to stay on the sideline. The UK has just entered its third lockdown, spurring rumors that the Bank of England could make a move towards negative interest rates, and if that's the case, I would like to express this bearish view via EURGBP long, targeting a move back to 0.92. The BoE next meeting in February we'll have a better clue on that scenario.

AUD: Why lockdowns news is good for the Aussie?

What's interesting about this economic recovery is the divergence between a strong growth in the manufacturing sector and the services that are still having to deal with this new wave of lockdowns, this phenomena has caused strong demand for goods, because of people having to stay and work from home, that's why we saw a rise in commodity prices, which has been a major driver for the commodity-sensitive currencies (AUD, CAD, NZD). I think this trend is still playing at least into the first half of 2021, and any pullback is a good buy to reengage the pair the upside.

--- Written by Halim Haddad,

 

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