European and US futures are trading higher as traders are finding comfort in the Fed’s monetary stance. Jerome Powell, the Fed Chairman, made it very clear yesterday that the Fed isn’t going to make any hasty decision in relation to its monetary policy. Traders have finally understood that there will be no early exit from loose monetary policy. The US economy needs to recover fully, and it will be some time before that happens.
The Fed has also addressed its concerns about rising bond yields and made it clear that it will be willing to issue more debt. However, speculators may continue to bet against the current trend for two particular reasons.
Firstly, we do not see substantial volume in the equity markets. Yes, the US equity markets and European markets are moving higher, but only on low volume. This means that big money is sitting on the sidelines and waiting for a disaster to occur, or it needs more convincing.
Secondly, a persistent rise in bond yields is likely to push traders into trouble. Only time will tell who is wrong, but for now, optimism prevails, and investors are happy that the Fed has their back, and the loose monetary policy isn’t leaving town any time soon.
The ECB Minutes
As for the economic calendar, forex traders will scour the ECB minutes, which are due later today. What they would like to see is evidence of more front-loading or more PEPP buying. After all, the governing council did assure traders that it will continue to support the market, and there will be a significantly higher pace of purchase compared to what they bought earlier this year.
The Euro-Sterling remains the most exciting forex pair as the Euro had its most significant jump against the British Pound on Tuesday this year, and even yesterday, we saw the currency gaining more strength against the Sterling. It is vital to keep an eye on the leverage funds’ long Sterling position because if the Euro continues to move higher, we could see a severe squeeze here.
The big issue with Europe is on the vaccine front as the continent is lagging far behind in getting vaccine shots in people’s arms. On the other hand, the UK is well ahead in this game, and not only is Moderna’s vaccine going to be available two weeks early, but the UK will be coming out of its lockdown next week as well. That means much higher economic activity, more spending, and all of this could possibly lead to a better job market.
Traders will also be looking closely at the US initial Jobless Claims data, which is due at 01:30 BST. This number is known for its volatility, and last week, we saw a serious drop in this number which made many believe that the US labour market is returning towards its norm much faster than previously anticipated.
As for commodities, we see more weakness in oil prices. Concerns continue to grow that we could see more oil supply in the coming weeks, and demand may not be able to keep up with supply. But traders think that oil prices went too far and too fast, and a retracement was going to occur. It is likely to we may see the crude oil price falling further, and we may begin to form some sort of consolidation between $54 and $55.