Dollar Holds Gains Even as Equities Rip Higher

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Dollar Holds Gains Even as Equities Rip Higher

FEBRUARY 03, 2021

The U.S. dollar is mostly unchanged this morning but continuing to hold gains from earlier this week even as equities continue their march higher. 

Overview

Risk sentiment is on the rise as the markets enjoy good news on multiple fronts.  The Senate yesterday voted 50-49 to open debate on a budget resolution which a necessary step in getting President Biden’s stimulus package passed with a simple majority.  Numerous tech companies, including Amazon, released positive earnings after the bell yesterday pushing futures solidly into the green.

Lastly, Redditt-fueled stocks have lost their momentum and, in some cases, have come crashing down to earth, easing fears retail speculative trading will destabilize markets.   The fact that the safe-haven dollar has held strong and even gained during this ferociously risk-on week is noteworthy indeed.

Early this morning ADP will report its private payroll data, which can often foreshadow the monthly Non-farm payroll data.  NFP is slated for Friday morning and is the largest risk event on the calendar.  Later this morning, US service and composite PMIs will cross the wire.  There is also a slew of Fed speakers and major earnings releases throughout the day.


What to Watch Today…

  • Service and Composite PMI

View Economic Calendar

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Our Senior FX Trader & Strategist, Juan Perez, talked with LeFonti International TV about the Fed in the limelight and Biden’s pandemic aid plan.

EUR  

The Euro is mostly unchanged overnight, meaning EUR/USD remains near the low of recent ranges. Indeed, the pair touched its lowest level since December 1st momentarily yesterday morning. The Euro was unable to take advantage of better-than-expected PMI data that were revised modestly upwards.

Politics aside, market participants were excited to see that former head of the European Central Bank, Mario Draghi, would be named the new Prime Minister of Italy. Italian bonds and stocks soared following the announcement. Draghi is well known by market participants and is seen as a calming influence. Draghi faces a tough task as Italy faces a high debt load, Euroskeptics throughout the government, and, of course, Covid-19.

While the Euro perked up a bit following the announcement, the general direction was not changed. This can serve as a reminder of how large the European pact is and developments in one of its members do not always change the narrative for the common currency.

CAD  

The Canadian dollar and other commodity-based currencies are only partially taking advantage of the recent run in commodity prices. WTI rose 3% yesterday and is extending gains this morning with the black gold touching its highest level in a year. While the Canadian dollar was able to gain during yesterday’s session, USD/CAD is largely unchanged on the week and slightly weaker to start this morning.

There is no major Canadian data set for release today. Canadian unemployment will be released at the same time as U.S. Non-farm payrolls on Friday morning.

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