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Asia Wrap: Light At The End Of The Tunnel For The Euro And Oil

By Stephen InnesMarket OverviewApr 12, 2021 06:56AM ET
www.investing.com/analysis/asia-wrap-light-at-the-end-of-the-tunnel-for-the-euro-and-oil-200572510
Asia Wrap: Light At The End Of The Tunnel For The Euro And Oil
By Stephen Innes   |  Apr 12, 2021 06:56AM ET
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Good news for the euro and oil could lead to a textbook environment for USD weakness

Oil and the euro finally got some good news from Europe regarding the vaccination programs. Germany had a decent week bringing it up to more than 12mil jabs, up by a quarter on the week and more than 700k in just one day last Thursday.

France is increasing the time between the first and second jab from four to six weeks to get more people vaccinated with the first jab, a system the UK used highly successfully. Maybe it is just my positive nature, but there could be light at the end of the tunnel, and hence pressure on the single currency and oil could ease during the near term.

A textbook environment for dollar weakness

That's how one could best characterize current economic and market conditions. The dollar index peaked at its 200dma and was dropping; EM risky stalwarts like ZAR, BRL and MXN led the way on growth forecast upgrades.

Treasury yields have eased, allowing relief for the G10 low yielder currencies. President Joseph Biden's infrastructure plan is smaller, more stretched out and partially financed by tax, which means it does not carry the fascination for the US dollar that January's fiscal package had. On the whole, then, a softer dollar could make sense.

China still had a sturdy credit impulse in March 

And despite all the tapping the brakes talk, China’s credit growth accelerated in March as economic activity picked up momentum after the Chinese New Year holiday, fueling demand for financing. The growth of TSF rebounded to 3340bn yuan in March following a significant slowdown in Feb (1710bn), albeit slightly less than the market expectation of 3700bn. 

The Brent $63 bbl springboard?

Positive comments on the US economy from Fed Chairman Jerome Powell ahead of key US driving season help to reassure the outlook for oil demand, balancing concerns about the continued spread of COVID-19 in some regions.

Although analysts are talking up possible US-Iran nuclear as medium-term supply negative, since Iran has reportedly been ramping up production and exports post US elections last year, and although progress on nuclear talks will affect sentiment, the actual supply impact is already being felt and much could be in the price.

Gold and CE3 reserves 

In what sounds like a Dragon Portfolio allocation, equally weighted 20% allocations are being made across asset classes while keeping the bid under physical gold markets. Following the rapid increase in Hungarian CB Gold Reserves (end Mar. '21 at 95 tons, end Q4 '20 4.6% of reserves), the Polish CB Governor suggested 20% is the correct gold allocation (vs. current 8-9%).

Asia Wrap: Light At The End Of The Tunnel For The Euro And Oil
 

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Asia Wrap: Light At The End Of The Tunnel For The Euro And Oil

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