Gold is the standout mover today, hitting its highest level since Nov 9. The move looks more reflective of a “risk-on” stimulus trade via a softer dollar than anything else.
The year has started very much the same as the previous year ended: risk up and the dollar down.
EURUSD last closed just above 1.2200 and has already advanced +60 since the Asia open and gathering a tailwind from Emerging Markets FX. The market was super bullish on the euro to end last year, but macro accounts could have trimmed positions for the turn of the year and may want to get involved in a big way again.
And with the holiday out of the way, I would not be surprised if a lot of packed in risk premium continues to come off the curve even more so if the Democrats manage to steal that 50th Georgia Senate seat tomorrow.
US dollar weakness remains the dominant theme in EM FX to start in 2021. USDRUB, USDTRY, and USDZAR all ~1% lower, with TRY outperforming despite a higher-than-expected Turkish December CPI print this morning (14.6% vs 14.03% prior, and vs 14.30% expected).
The markets are following the 2021 buy everything playbook to the tee. So, what could go wrong?
But buyer beware – though that might be the ‘2021 trade’, the January trade could well be very different.
The UK is pushing back school re-openings, and UK PM Johnson talked on Sunday of possible further movement restrictions.
Japan PM Suga said he is considering calling a state of emergency in the Tokyo area because of rising COVID-19 cases. And if the US lawmakers get into the jittery Covid-19 mutation moment, the immediate term could get a lot testier.
