Today’s US data was disappointing and well under the market expectations, with US retail sales dropping 3%, but most of the markets have shrugged that off due to perhaps the upward revisions of data prior to the stimulus package at the end of 2020.
The markets have forward projected that with the added stimulus that just landed in the bank accounts of the US citizens over last weekend, that the trend in better data will continue, and maybe today’s data should be taken with a pinch of salt. What this does mean is that if things actually start to turn bad and the data is not revised higher as we go forward into 2021 H2, that these Risk-On trades will be quickly unwound.
On the news wires today, it was noted that the Chinese state banks are using FX swaps to increase their holdings of US dollars. Some money market watchers are starting to predict that the Eurodollar market with what is happening in China may actually be signaling a shortage of US dollars, which if it turns out to be true could be very supportive of the US dollar index, and maybe we don’t get to test below the 2018 lows.
The DXY found resistance at the 92.0 level today but is trading higher than the previous 3 days and with that the US10 year yields may have found their high print of 1.640 until we get the FOMC meeting minutes.
The EURUSD traded lower into the US session but found support at the 1.1880-1.1890 zone, and if it can trade back towards the 1.1970, we may have the next leg higher back up to 1.2020-1.2040 where the early March breakdown occurred. If the US dollar does find more strength from demand, then EURUSD is on a downward slope from here.
Coronavirus scares are dominating some news outlets as China has new cases and there are variants being diagnosed across Europe, just as countries put a pause on the use of the AstraZeneca vaccine due to blood clot issues. The European Medicines Agency is
evaluating all blood-clot reactions and should have some data they can work with by the end of the week. The UK government is pressing forward with their use of the available vaccines as the benefits are outweighing the risks. The British pound is largely unchanged against the US dollar.
There were several bond auctions that put a pause to the markets while we awaited the results. The latest being the 24bln auction of 20-year bonds, which had a very impressive Bid-to-cover ratio of 2.51x which is higher than the previous demand and above the 6-month average which comes in at 2.32x. This goes to show there is still demand at these depressed levels on the TLT, which is unsurprising due to the pressures on the Tier 1 banks to hold the highest quality collateral and that the Fed remove $120bln each month from the fixed income markets reducing supply. At some point, if the demand pressures can outweigh the supply, the speculative shorts in the TLT will have to give up their positioning and Bonds will go parabolic higher.