AUDJPY has long traded as an excellent risk proxy among G-10 pairs, traditionally from a carry perspective as Australia used to run one of the higher policy rates within G-10 and Japan has wallowed around close to zero for more than two decades. In more recent times, it is more about Australia as a proxy for the reflation trade and the strength in specific commodities, especially iron ore and the demand for Australia’s exports into the star performer since the pandemic breakout, China. So if we are set to see a second guessing of the risk-on and to some degree the reflation trade a risk correlated pair like AUDJPY could be in for a correction. The MACD has crossed over to the downside, suggesting that AUDJPY is at a pivotal point here after mounting a low-energy retracement of the recent sell-off, and generally not correlating well with the recent surge in other risk assets. The pair can push all the way back to 76.50 without beginning to really strain the up-trend.

AUD JPY 20210125 13.22

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USOil D1 12 07 2020 1319

Crude oil reached a nine-month high after the OPEC+ group of producers, following another nail-biting week of discussions, agreed on a compromise deal that will see production rise in stages over the coming months, starting with 500,000 barrels/day in January. With the expected vaccine-driven recovery in global fuel demand this deal will go a long way to ensure the price of oil remains supported until it can stand on its own feet.

The fact that the market rallied despite having priced in a postponement of the previously agreed 1.9 million barrels/day production increase was due to the flexibility of the deal. Meaning that production can be raised but also cut back should the recovery turn out to be slower than expected. Overall, analysts are now expecting that the road towards a balanced market has been shortened and on that basis expectations for higher crude oil and fuel prices into 2021 have been given a boost.

Adding to these supportive developments, a cut this year by the oil majors of more than $80 billion in longer-term capital spending will likely start to feed through to higher oil prices in 2022 and beyond. Unless this past year has changed dramatically the way global consumers will work and travel and thereby consume fuel going forward, only time will tell.  


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The US dollar continues to consolidate to the strong side as the Biden presidency approaches, one that was meant to weaken the US dollar further, given the slim Democratic control of Congress, but with the market constantly trying to operate on far future expectations, it may simply have gotten ahead of itself. This consolidation will become a bit more threatening for the USD bearish case if it continues.

The US dollar has managed to pull higher still since the weak close on Wall Street on Friday, with sentiment still a bit edgy ahead of this Wednesday’s Biden inauguration and despite a near total lack of unrest across the US at the weekend after warnings were loudly trumpeted from official quarters. Supposedly, we should also be concerned for protests on Inauguration Day itself, but the hopeful view for public order is that the Capitol Hill riots were a one-off, down to the presence of a gaggle of the most extreme Trump supporters and a mob mentality excited by a number of fiery speeches from Trump and others that goaded them on.

US Dollar Basket 20210118 15.48

Assuming an orderly transition, there are still a number of burning questions looming as Biden takes office, from whether and how quickly his administration can do anything about the vaccination effort and winning the race against hyper-contagious Covid strains, to the temperature in Congress (most importantly among a key handful of senators) on stimulus checks and other stimulus measuresI will also be keeping a close in eye in the first weeks of the new administration on signals from the Biden administration on China and on Russia, where sanctions are a looming threat after accusation that Russia is behind a recent cyber-attack of US government agencies and as the Democrats still claim Russian interference in the 2016 election. The outgoing Trump administration has also moved rather aggressively against China on a number of fronts and the market may be taken aback if the Biden administration doesn’t soften its stance against positions that the Republicans have now staked out on Chinese companies and listings on US exchanges, among other issues.


While we await all of this incoming information, the USD consolidation has reached reasonable, consolidation levels without yet breaking anything. And while full trend reversal levels remain some ways off, further USD strength in the near term begins to stress the USD bearish case. One thing that is most concerning for the risk of a more profound USD rally here is one of positioning.. This kind of divergence has marked a major market turn in the past.

US Dollar Basket 20201130 13.30

The US dollar is perched near the final support levels in a number of USD pairs ahead of Fed Chair testimony later this week and a busy economic calendar through the Friday payrolls and employment data. But global animal spirits are likely the more important drive in determining whether the US bear trend is set to deepen here.

Exchange rates are awfully quiet these days, but the directional move lower in the US dollar has finally extended enough in recent days to take the greenback to key levels that tell us whether a proper trend is unfolding here.
Most interesting scenario to challenge the weaker US dollar would be strong economic data that inspires higher US yields , range bound or lower yields with strong risk sentiment keep USD bears comfortable.


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The US equity market is trading near all-time highs in the futures market overnight, as US President Trump’s signing of the stimulus bill removes the last notable political hurdle of the moment, although we are bearing down on important political risks just after the New Year in the shape of the Georgia Senate run-off races  The high market from last week for the S&P 500 is the 3,724 level.

SPX500 H8 12 28 2020 1242


Chinese regulators have demanded Ant to return to its ‘roots’ in payments closing down its businesses in insurance, consumer loans, and wealth management. Very little specifics have been provided and the deadline is specified as ‘as soon as possible’. China is clearly saying no to sprawling technology groups exercising their power across many businesses unified by personal data. Chinese technology companies are becoming a bigger and bigger part of the MSCI Emerging Markets Index and thus the Chinese crackdown could create an unexpected headwind for EM equities in 2021.

Alibaba Group Holding Ltd All Sessions 20201228 12.48

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AUD USD 20201123 12.37

Still watching and waiting here as this is a currency pair the expectation that the global economy can begin to eventually look beyond Covid-19 (and effectively already can now for much of Asia) and that fiscal stimulus will drive inflation and commodity prices higher. The AUDUSD has traded in a very narrow range for over two weeks now as bulls wait for the signal that a 0.7400+ break is unfolding that can shift the focus perhaps all the way to 0.8000+ if the USD is set for a major weakening move. On the flip-side – declining US long yields are a confusing factor here and if this represents a concern on the growth outlook, the reflation trade may yet falter. Still, a breakdown in AUDUSD only looks a threat if the price action retreats below 0.7200. 

AUD USD 20201123 12.38

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Equity markets are off to a cautious start to the week despite a breakthrough in stimulus negotiations in Washington that agreement on a $900B stimulus package. Weighing a bit on sentiment elsewhere, Brexit talks are in a precarious state as the UK finds itself in literal quarantine on the discovery of a new Covid-19 virus strain.

A $900 billion stimulus package agreed by US Congress  but likely set to be signed off by Congress and President Donald Trump in coming days, the new stimulus package includes $15 billion in airline bailout money, extension of $300/week supplemental jobless benefits through March, $600 stimulus checks, but no funds for state- and local government aid. 

US 500 20201221 14.23

The US equity market sold off. The agreement on a large stimulus package over the weekend has not boosted sentiment notably as the last days of 2020 wind down this week and next. Areas of interesting in the S&P 500 index include the 3,700 area, which was near the prior top and seems to be a local pivot level.

Germany 30 20201221 14.23

The reaction of markets last week to Pfizer’s announcement that its vaccine has proved 90% effective in trials gave investors a taste of the potential recovery to come. UK stocks – which have dramatically underperformed their US counterparts delivered their best week since April, with the FTSE 100 gaining 6.9% and the FTSE 250 up 7.6%.

FTSE 100 20201116 15.08


Brexit: if last week wasn’t the week, will this finally be the week we know more? The supposed November 15 deadline for an agreement on the post-Brexit landscape came and went and now this week is being billed as the crunch week for negotiations, although some sources suggest the talks could stretch out longer still. UK Prime Minister Boris Johnson has been distracted with the exit of key advisors and had to self-isolate this weekend due to exposure to someone who later tested positive for Covid-19. GBP doesn’t seem to mind the latest extension of the uncertainty as EURGBP remains below the key 0.9000 level, but it is time for a breakthrough soon.

EUR GBP 20201116 15.09

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Despite recent discussions, trade negotiations between Britain and the European Union remain deadlocked. With Britain set to officially leave the European Union on December 31, no formal trade deals have been made yet, with the leaders of both groups doubting whether a deal will be reached in the near future. The uncertainty created by the current situation saw markets across Europe react negatively over the last week, with investors looking to mitigate what could be risky investments.

A no-deal Brexit has become a much more distinct possibility in recent days, and negotiations are going down to the wire. There is still a huge amount of uncertainty, which means there is likely to be a market reaction whatever the outcome of negotiations. On Friday, Morgan Stanley said that it anticipates the FTSE 250 index will drop by 6% to 10% if the UK fails to agree a trade deal with the EU by the time the current transition deal concludes at the end of December, according to Reuters.

FTSE Mid 250 20201214 15.00

Last Monday saw Tesla reach new highs, with a 7.1% increase in stock value helping the company to become the sixth in history to pass the $600 billion market cap marker. A continued appetite for technology stocks fuelled the positive movement, with Tesla among just a handful of companies to reach the milestone.

Tesla Motors Inc All Sessions 20201214 15.02

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According to US Election Projections, more than 80 million ballots have already been cast, which is 58% of the total 2016 turnout. As a result of these early ballots and mail-in ballots, election day may turn into election week or even election month! The election day is Tuesday. If there is a decisive winner in the swing states, it may be over quickly. However, the loser of the election may bring the results to the Supreme Court citing anything from mail fraud to international interference.

If the US elections are uncertain and drag-on, that may be the only factor driving the markets next week. However, there still are other topics to watch. Most importantly is the reemergence of the coronavirus in Europe and the US. Some countries in Europe, such as Germany, Spain, and France have gone under national lockdown. Other countries have imposed additional national restrictions and curfews, such as Italy and Ireland. The UK currently has localized lockdowns and restrictions. Some speculate national lockdowns may be ahead. Last Thursday, over 500,000 positive cases were reported worldwide for the day, a new daily record. In the US, up until this point, states impose their restrictions on restaurants, schooling, and curfews. However, if Joe Biden wins the Presidential elections, he has said he will implement national restrictions. Which brings us to another issue: the next President doesn’t get sworn in until January 20th. Many hoped for a new fiscal stimulus deal by the time election day arrived. If Trump loses, the US may not see one until February. To make matter worse, if Joe Biden wins the election, but Republicans maintain the Senate, it may take even longer for package to get done.

GBP USD 20201102 19.24

Mid-November is the goal to have a deal in place. However, the BOE cannot wait any longer. The Central Bank will provide more stimulus due to the expected fallout from the new round of coronavirus cases.The central bank currently has rates set at 10bps.

There is speculation the BOE may cut to 0 bps while setting the table for negative rates.The commodity sector has seen a sharp reversal from the strong gains recorded during the past couple of months. Faced with a renewed surge in Covid-19 cases in Europe and the U.S. as well as next week’s ultimate risk event, the U.S. presidential election, it is perhaps not that surprising to see investors turn more defensive.

Oil US Crude 20201102 19.19

Brent crude oil tumbled below $39/b support in response to a bigger-than-expected jump in U.S. stockpiles and renewed lockdowns being introduced in France and Germany with other European countries set to follow suit during the coming week. Overall, however, we suspect that a combination of long liquidation having run its course and vocal intervention from OPEC+ ahead of $35/b may prevent the price from falling much further.

The commodities most at risk being the ones where speculators are holding large and mostly long positions as the focus switches from a long-term bullish outlook to a short-term and more defensive attitude.

Oil Brent Crude 20201102 19.20

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