EZ Data Beats Big; EURUSD Takes Out 1.2200; Is Risk Ready to Rumble?

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Dollar down across the board
Equities remain bid on stimulus hopes
Nikkei 0.26% Dax 1.59%
UST 10Y 0.92
Oil $47
Gold $1861/oz.
BTCUSD $19688/oz.

Asia and the EU
EUR PMI 49.8 vs. 45.8
GBP PMI Services 57.9 vs. 55.9

CAD CPI 8:30
USD Retail Sales 8:30
USD FOMC 14:00

Risk flows were clearly in control of the markets in Asian and early European trade today with the dollar broadly weaker and equities higher as positive European data helped lift the EURUSD through the 1.2200 barrier.

EZ PMI printed far better than forecast with the composite number coming in at 49.8 versus 45.8 forecast within a whisker of the 50 boom/bust barrier level. According to Markit, “Eurozone business activity came close to stabilizing in December as stronger manufacturing output growth helped to counter a further drop in service sector activity. Encouragingly, future output expectations jumped to a 32-month high, as prospects brightened amid recent news on vaccine developments.”

The recent spate of shutdowns in Europe may once again turn those figures lower next month, but it’s becoming clear that European manufacturing businesses are learning to adapt to the new conditions while the services sector is sure to get a big boost in demand once the vaccination campaign takes hold.

The EURUSD broke above the 1.2200 figure on the news as the single currency continues to trade on momentum flows, but after such a large move it should find resistance at these levels as buyers look to take profits.

The eco calendar is very busy today with US Retail Sales on deck with the market looking at 0.2% growth versus 0.1% the period prior. Given the fact that the virus has raged across the US over the past month limiting mobility, the key factor in the Retail Sales report will be e-commerce demand which will have to offset the likely drop in brick and mortar shopping.

A strong Retail Sales report would be helpful to equities which are already up 30 basis points on the day, but the key driver of trade today will be ongoing stimulus talk and the FOMC meeting and presser later in the day. If the markets can get the much vaunted combination of continued easing monetary policy along with news of a fiscal boost, the stage would be set for strong rally into the close of the day with equities once again probing all time highs on Nasdaq and S&P

Boris Schlossberg
Managing Director

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