Markets slip slowly into last trading day of the week – Market Overview

By: Miguel A. Rodriguez

14:43, 15 January 2021

Yesterday came the long-awaited statement from Federal Reserve Chairman Powell and President-elect Biden on the fiscal stimulus package.

The Fed chairman ruled out the possibility of an early reduction in expansionary monetary policy by emphasizing that they would keep interest rates at current levels even with inflation exceeding the 2% target. In short, the same speech that he had maintained until now.

The market's expectation was centered on a possible change in his discourse that would point to a reduction in his accommodative monetary policy due to expectations of an improvement in the economic situation in the face of a more expansive fiscal policy by the Government.

The market had anticipated this possibility with sales of treasury bonds that had brought yields to maximums not seen since the beginning of the crisis. But his speech did not have any change concerning the previous ones, and with it, the yields of the treasury bonds fell slightly from highs.

On the other hand, President-elect Biden announced the final figure that they would propose in their aid package to the economy due to the effects of COVID. After targeting several trillion Dollars, the amount remained at 1.9 trillion, a significant volume but below expectations raised previously.

Also, the question arises as to whether it will add the necessary supports in the Senate for its final approval.

The critical date will be the end of March, when the previously approved unemployment benefits expire.

It will be necessary to provide new funds to avoid a decline in consumption figures that remained at acceptable levels until now.

In this sense, today, the retail sales figures for December are published with an expected model of - 0.2%, somewhat better than the previous month, which was -1.1%.

In this situation, the markets have reacted very modestly with a slight decline in treasury bonds' yields. In the 10-year T-note case, it has fallen to 1.10% after the peak reached two days ago at 1.18%. Given this, the upward momentum of the Dollar has diminished, although without any significant setback.

The EURO vs the USD

EUR/USD broke down the 1.2150 zone reaching a low of 1.2116, but this movement has not continued at the moment and remains in a stable direction through the 1.2130 zone.

From a technical perspective, the first support can be considered broken. With an RSI indicator still in the intermediate zone, the way down to the next support level located at 1.2065 remains open. For this, the evolution of the treasury bonds' yields will be necessary, any rebound from the current levels would serve as an upward impulse for the Dollar and therefore a downward pressure for crosses such as the Euro.

Sources:  Bloomberg, Wall Street Journal.

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