Biden Becomes the 46th US President, ECB Enters the Limelight

Equities Rally on Biden’s Inauguration

The US dollar kept trading south against all but two of the other G10 currencies on Wednesday and during the Asian session Thursday. It lost the most ground against NZD, CAD, NOK and AUD in that order, while it was found virtually unchanged versus EUR and CHF.

BoC and BoJ Keep Their Policies Steady

Yesterday, apart from Biden’s inauguration, we also had a BoC monetary policy decision. The Bank decided to keep interest rates and the pace of its QE purchases unchanged, disappointing those expecting a small cut or even a re-increase in QE. Officials also noted that “As the Governing Council gains confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required”, which suggests that the next policy step for BoC may be tapering QE. The result was a stronger Canadian dollar, which we expect to stay supported, not only from a monetary policy front, but also helped by the broader market sentiment. Remember that our view is for risk appetite to stay supported in the first months of 2021, which means higher oil prices and thereby, a higher Loonie.

Will the ECB Signal that More Stimulus is On the Way?

As for today, the main event on the agenda may be the ECB monetary policy decision. At its last meeting for 2020, this Bank decided to expand its Pandemic Emergency Purchase Programme (PEPP) by EUR 500bn and extended the scheme by nine months to March 2022. That said, the euro gained on the decision, as, due to the currency’s prior appreciation, many may have expected the Bank to deliver more. Currently the EUR/USD exchange rate is trading at about the same levels as back then, having even hit much higher levels earlier in January, which is a negative for consumer prices. After all, President Lagarde said at the press conference following the last decision that the appreciation of the euro exercises downward pressure on prices and that they will monitor it very carefully.

EUR/CAD — Technical Outlook

Overall, EUR/CAD continues to trade below a short-term downside resistance line taken from the high of December 30th. Yesterday, the pair hit a new lower low, testing the area at 1.5268. This morning the rate is correcting slightly higher, however, if it remains somewhere below that downside line, we will stay bearish, at least with the near-term outlook.

GBP/NZD — Technical Outlook

Yesterday, GBP/NZD fell sharply, dropping below its short-term upside support line taken from the low of January 6th. Although this morning we are seeing a small upmove, we might class that move as a temporary correction, before another possible leg of selling, especially if the rate continues to trade below the previously-mentioned upside line.

As for the Rest of Today’s Events

Apart from the ECB decision, we also get the US building permits and housing starts, both for the month of December. Building permits are forecast to have declined somewhat, to 1.604mn from 1.635mn, while housing starts are expected to have increased to 1.560mn from 1.547mn. Initial jobless claims for last week are also due to be released and expectations are for a slide to 910k from 965k.



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