Of course, every G3 trader in Asia waits until Europe and London get passed over the book before making any judgments on Monday FX trade, especially after a payroll miss that pushed back on the US economic exceptionalism theme.
The market's euphoria on former ECB President Draghi handed the mandate to form a government in Italy has pushed BTP spreads to multi-year lows, but it hasn't seemed to support the euro. It hasn't even meaningfully supported EUR/CHF, which in the past has been strongly driven by Italian developments - especially significantly negative ones.
There are three critical ingredients in the cheery US dollar brew particularly against the euro that in play above and beyond the euro getting viewed as a funding currency with EUR/CNH trading at 3-month lows.
- US vaccine outperformance is still getting priced into EUR/USD. The US economic recovery will be earlier and more robust than in Europe.
- US President Biden's fiscal package is still getting priced into EUR/USD. Some economists are warning about overheating, but Biden looks determined to push this forward as per Yellen weekend sales job
- Growing risk of social and political unrest in Europe in response to the continent's poor performance on ordering and rolling out COVID vaccines.
Indeed # 3 could deteriorate over the next few weeks and make investors question the future of European integration, from an angle that many had not previously thought possible.
Downside pressure on EUR/USD could persist in the near term and push the pair towards 1.18.
Asia Oil wrap
Brent crossed $60/b in Asia trade amid US stimulus optimism and some reports suggesting the Biden administration is pushing back again easing Iran sanctions. All the while evidence is building that demand is recovering, and global inventories are falling. Bloomberg estimates that global oil inventories have declined by around 300 mn barrels since implementing the OPEC+ production cut agreement last year. A rebound in Chinese oil demand is the keen leading indicator for other key oil-consuming economies.
At some point, spare capacity sitting on the sidelines will be an issue. Still, as it stands right now, traders are willing to look through just about anything with the US reopening narrative getting a boost for vaccination protocols that should continue to flatten the curve and with the gale-force stimulus tailwinds supporting a spring break reopening.