Tricky start for major currencies

FX and Gold market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi, 

It has been a tricky start to the year for G10 FX as the favoured trades have not performed and honestly – nothing has moved.

But with Janet Yellen putting a convincing and staunch dovish footprint on markets by supporting maximum policy overdrive, it should encourage more US dollar shorts on the view that monetary and fiscal policy are singing from the same hymn sheet (with the US Federal Reserve) and one of a maximum possible stimulus.

It’s striking just how appealing virtually every asset class on the street looks when viewed through the weaker US dollar lens.

Malaysian Ringgit

The Biden stimulus rally has pushed emerging market stocks to all-time highs. So with risk sentiment improving, Brent crude trading comfortably above USD55, and the US dollar weakening a touch, it should provide a more inviting backdrop for the ringgit.

However, while the incoming Biden administration’s focus will be domestic-orientated, another all-time high for China’s trade surplus in December (USD78.17 billion) ostensibly supports US foreign policy hawkishness which is not great for Asia FX risk and worth keeping ears and eyes trained on the early tonality of the new administration’s views on China trade.

Gold gains some shine

Maximum stimulus overdrive, favourable to bullion turnaround in taper talk and slightly weaker dollar paint an encouraging backdrop for gold prices provided real rates oblige.

Gold has been facing headwinds from a strong US dollar and higher real rates so far this year. The market is trying to hold the yellow metal above crucial support levels, which is encouraging.

But so far, gold has struggled to recover convincingly past the USD1850 psychological level, and the 50dma around USD1960 remains the ultimate target Q1 for gold bulls.