New Month, New Opportunity

Investors kicked off the month of February with renewed optimism as equities and currencies rebounded after last month’s losses. A new month brings new opportunities and that could begin tonight with the Reserve Bank of Australia’s monetary policy . This is a busy week for international markets with two monetary policy meetings, Eurozone Q4 , , , and employment reports scheduled for release. Wall Street is still dealing with the GameStop (NYSE:) short squeeze fallout and the battle between hedge funds and retail investors extended to , AMC Entertainment (NYSE:) amongst other names.

For now, bulls are in control as flirts with 105. The greenback traded higher against all of the major currencies despite a slightly weaker ISM manufacturing report. Manufacturing activity growth slowed in the month of January as the ISM index dropped from 60.5 to 58.7. The surge in the prices paid component however is a sign that inflation is creeping higher across the globe. Despite a nasty second virus wave, most US states did not reinstate March restrictions and that decision helped limited the impact on the economy. Nonfarm payrolls are expected to rebound in January after falling for the first time in 8 months. We’ll also hear from a number of Federal Reserve Presidents. While Fed Chair Powell refrained from taper talk, his colleagues may not be so restrained.

The Reserve Bank of Australia is widely expected to leave monetary policy unchanged this evening. With the climbing to multi-year highs last month and 2 million people in Perth in lockdown after one case, the central bank has no choice but to remain cautious. With that said, data improvements have been reported with the index ticking higher. That will be widely expected so the impact of RBA on AUD should be limited. Instead, investors will be watching this week’s speech by Governor Lowe, and the index scheduled for release. All three commodity currencies traded lower with the Canadian dollar leading the slide.

Meanwhile despite upward revisions to Eurozone PMIs, fell the most on Monday. The problem is that while manufacturing activity was healthier, consumer demand was much weaker. German dropped -9.6% in the month of December, which was worse than the -2.6% forecast. Chancellor Merkel closed most retail shops in mid December after a failed partial lockdown in November. Those restrictions lasted throughout January which means there was no recovery in consumer demand last month. The Eurozone’s fourth quarter report is due for release tomorrow and while German was better than expected, the overall report should be subdued.

Sterling traded lower as well despite upwardly revised PMIs. GBP/USD has been consolidating over the past week and is prime for a correction. The Bank of England this week and while they are not expected to change monetary policy, talk of negative interest rates could tip the currency.

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