US Dollar Higher ahead of Powell

Fundamental analysis of Forex market

Another relatively mixed session on Thursday, with the US opening marginally higher ahead of the open as investors weigh up reported stimulus plans from the incoming Biden administration.

While the promise of more Covid relief is good news for the economy and markets this year, fears that it could prompt the central bank into tapering asset purchases has raised yields. Policy makers this week have sought to ease those concerns, with some success, but reports that Biden is targeting a $2 trillion package has lifted yields once again.

Fed Chair Jerome Powell is due to speak later in the day and will likely echo much of what his colleagues have been saying this week. These markets are craving that reassurance though, with the central bank having been pivotal in sustaining these markets over the last 10 months.

In many ways, it feels like investors are just trying to get through this week. US politics has become a distraction for the markets and the sooner we move on from the current limbo the better.

Earnings season kicks off tomorrow as well and there may be an element of investors waiting to see the early financial reports to get an idea of how the coming weeks are going to be.

Oil pills back as OPEC maintains growth forecasts

Oil prices are pulling back a little again today after once again rallying strongly over the last week and adding to impressive gains since the start of the year. In its latest monthly report, OPEC left its demand forecasts for this year unchanged, but highlighted the risks to the economic recovery this year which will naturally impact these forecasts in the coming months.

Ultimately, oil prices look pretty comfortable above $50 after OPEC+ last week provided further support to the markets in the current challenging environment. We may see a minor pull back now, especially if the dollar continues to see further support from rising yields, but I don’t expect it will be overly significant as traders appear to have full faith in the cartel to respond accordingly and quickly.

Gold edges higher despite USD gains

Gold is managing to squeeze out small gains today despite the dollar also edging higher on the day. The yellow metal remains stuck around its recent lows though following last week’s plunge which doesn’t bode well for the near-term outlook unless the Fed can be successful in convincing investors that bond buying at interest rates will remain at least at current levels for a sustained period of time.

As we can see with US yields now, doubts are growing about that, particularly against the backdrop of Joe Biden’s ambitious stimulus plans. Especially when many policy makers are so optimistic about the outlook already as a result of the economic resiliency shown this year.

Gold is seeing some support over the last week or so around $1,820, where it did back in mid-December, but this level continues to look vulnerable. A retest of the late November lows may be on the cards, should Powell et al fail to convince in the coming weeks.

Bitcoin recovers from blip earlier in the week

Bitcoin is continuing to recovery from its plunge earlier this week and is already closing in on $40,000 once again. It should come as no surprise to anyone that bitcoin has bounced back so quickly. We know it’s an extremely volatile instrument, the only difference this time is the absolute numbers are now much larger due to its growth over the last month.

The moves earlier this week was not the bubble bursting, it was barely a correction by bitcoins own standards. It was a reminder of the downside risks in the space. There will be plenty more bad days ahead but as we’re seeing now, bitcoin bulls are not deterred and we could see more significant gains in the very near future. We could see an interesting psychological test around $50,000 which, the way this now moves, may not be far away.