The VIX volatility index is trading around 20 and of late this has been good for the US indices. In overnight trading and following on from the RBA minutes release, the major stock markets across Asia took the bullish baton from the US markets yesterday and rose higher, as traders’ expectations of all the central banks keeping to previous policies were unchanged. The Hang Seng and the Shanghai Composite both traded higher by 0.7% but have a long way to go to get to positive levels for the month to date, after underperforming this last quarter.
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The RBA minutes showed that the unconventional monetary policies remain in place and will likely extend beyond 2024 and that the RBA board did not feel that rising commodity prices would lead to inflationary pressures in Australia unless their labour markets tightened significantly. The RBA is keeping their low rates policy until they can see sustained targeted inflation of 2%-3%. The Australian dollar has had a very bullish run since 2020 lows, but the recent break and retest of a rising trend line could be signalling the US dollar is about to get the better of the Australian dollar.
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Oil has had a major rebound in prices since the spring of 2020 but with news developing in China and Europe of further lockdowns against a backdrop of increasing worries around more coronavirus mutations and the AstraZeneca vaccine suspension, the commodity may not be in such demand going forward, even though OPEC estimated the recovery in demand would be in the second half of 2021. $63 is looking like near-term support, so while WTI trades above there we have to look to buy the dips and keep with the longer-term trend.
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Japan’s Prime Minister Suga said today that they want more time to decide on lifting the emergency measures and the Japanese finance minister confirmed that there will be cash handouts to low-income families, similar to the stimulus cheques one would assume that the USA has just handed out to their citizens. Japan’s industrial output growth was revised up to 4.3% for January showing good recovery from the 1.0% fall in December. Today the Japanese yen is currently trading higher against the rest of the G-10 apart from the US dollar, though the trend for USDJPY is very bullish with significant support a few hundred pips lower.
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The Nikkei 225 has been traveling higher within a tight trading range of late and a change in the short-term trend would be signalled by a break and retest of yesterday’s low.
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Currency pairs are unlikely to move out of their current trading ranges as we get closer to the US FOMC meeting minutes but today if the euro is to be affected by any news it will probably be around the ZEW European survey data and the German ZEW economic sentiment for March. US Retail sales are unlikely to have any positive effect on the US dollar as expectations are for a 0.5% drop. The EURUSD is teetering on the support levels from the Autumn of 2020 resistance and looks like it could fall back into that trading range between 1.1920 and 1.1600, which makes sense if Europe is to suffer more with the coronavirus and the US dollar with US yields holds their recent bullish form.
