PlusMarkets Analysis • April 14, 2021
Markets remain upbeat amid relatively tame inflation and despite a pause of J&J’s vaccines. The ECB’s Lagarde, the Fed’s Powell, and other central bankers are eyed. Cryptocurrencies are surging to new highs.
Several US stock indexes have hit new record highs and they are pulling Asian and European markets higher as well. US inflation advanced in March but fell short of what some had feared, with the Core Consumer Price Index hitting 1.6% yearly, allowing for an upswing.
The US dollar is depressed amid this risk-on sentiment and after a 30-year Treasury auction received high demand from investors. The benchmark ten-year yields have tumbled to around 1.60%.
See US Inflation Analysis: Doomsday will wait, but second “sell the fact” on the dollar looks near
EUR/USD is changing hands above 1.1950 despite a setback in Europe’s vaccination campaign. Johnson & Johnson suspended deliveries of its single-shot COVID-19 inoculations to the old continent following concerns about blood clots that arose in the US.
The FDA paused immunizations after six were linked to J&J’s jabs. Without the pharmaceutical’s vaccines, the EU is set to immunize 70% of the population only in December instead of the summer, yet the delay may be temporary. European Central Bank President Christine Lagarde is slated to speak later in the day.
GBP/USD is edging up toward 1.38 and USD/JPY is trading around 109. NZD/USD is around 0.71, benefitting from the greenback’s weakness and dismissing the Reserve Bank of New Zealand’s rate decision, which left rates unchanged.
Jerome Powell, Chair of the Federal Reserve, and three of his colleagues will speak later in the day, in parallel to the publication of the bank’s Beige Book, which includes anecdotal evidence about economic activity across the nation. The Fed’s message has been that higher inflation in the spring is transitory and that it is set to keep policy accommodative until the employment situation substantially improves.
Economists at Credit Suisse remain bullish on the loonie ahead of next week’s fiscal budget announcement on 19 April and of the BoC’s interest rate decision on 21 April and hold a 1.2260 USD/CAD target.
The Bank of Canada is unlikely to push back
“We see COVID-19 and lockdown-related risks to the growth outlook as limited for now, and partially offset by the prospect of additional fiscal spending.”
“Bank of Canada may announce a very gradual plan to reduce asset purchases: we think this would add to the already ongoing reduction in balance sheet growth, with positive implications for CAD.”
“Our view on CAD is constructive, with a 1.2260 USD/CAD target over a three-month horizon, and is based mainly on expectations of beneficial growth spillover from US fiscal stimulus.”
EUR/USD has been riding higher after US inflation fell short of investors’ fears. However, overbought conditions and a vaccine scare may cause a pause and prevent the pair from rising above the 1.20 level, FXStreet’s Analyst Yohay Elam reports.
The halting of J&J’s vaccine distribution may delay Europe’s exit from the covid crisis
“Jerome Powell, Chair of the Federal Reserve, will speak later on and may feel vindicated that his insistence that inflation will be transitory is proving correct – at least for now. The world’s most powerful central bank has not only urged patience with inflation but also wants to see a substantial increase in employment before moving. That may take a long time. In the meantime, the dollar could remain under ongoing pressure.”
“The US FDA recommended pausing injecting the firm’s immunizations after six cases of rare blood clots among 6.8 million people that were inoculated. The investigation will likely take several days.”
“The euro was hit as J&J promptly decided to pause sending its vaccines to European countries, in an ‘abundance of caution.’ While the US does not depend on the firm’s single-shot solution to reach its goals, the old continent may suffer a delay of 3-4 months to reach 70% of its population. Losing another summer season could be devastating.”
“The Relative Strength Index is flirting with 70 – on the verge of overbought conditions and signaling a potential drop.”
“Critical resistance is at 1.1990, which is a double-top from March. It is followed by 1.2025 and 1.2110, levels seen earlier in the year.”
“Support awaits at 1.1950, a resistance line from late March, followed by 1.1925, a cap from last week.”
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