The series of dollar price increases took ‘pause for the cause’, although the yields of US treasuries remained at high levels. FED members are beginning to express their views on the subject of further asset purchases under the current QE program. Robert Kaplan unexpectedly admitted that in a few months' time a discussion on the gradual phasing out of this program could be considered, that of course if the economic situation allows it. The other FED members who spoke yesterday (Barkin and Bostic) hinted that the Reserve should focus on achieving its goals for now. We have more speeches by decision makers planned.
Today, the House of Representatives intend to deal with the motion to remove President Trump from office (impeachment). The chances of that are quite slim, given that Mike Pence and some Republican members in the Senate reject the idea. The current president's term of office ends on January 20. For the markets, this brawl may not matter much indeed. The key will be any speculation as to the details of the broad fiscal program to be presented tomorrow by President-elect Joe Biden. The situation around COVID is also focused for the markets, both in the US and in the world. In Japan, a state of emergency is to be declared in three districts, while China has ordered a 7-day lockdown in Guan Province.
On Tuesday, those currencies that have been weak recently, such as NOK, AUD, NZD to GBP, perform the best. At the same time, they are the most sensitive to risk-on/risk-off fluctuations.
Yesterday the EURUSD broke 1.2173-76 support based on the former highs from 3-4 December. Today's correction is therefore within the so-called return movement. Is it just a technical setup? MFI remains negative, which seems to suggest that the larger correction is not over yet.
GBPUSD is also quite sensitive to global risk fluctuations, which can sometimes lead to a short-term reaction. This may have happened this morning when the peak was reached at 1.3566. Looking at the long-term perspective, the pound's outlook is weak and should not be overshadowed by the dollar's volatility. The combination of the new reality after Brexit and the clear lockdown, which may last until the end of March, should be visible in the macro data and in the rhetoric of the Bank of England.
On the daily chart, we can mark a downward move, and the last days have brought a number of important medium-term signals. It will be difficult to deny them.