Risk-on market with directional sense being explored! “January 17 highlights and event schedule”

Yesterday, the development was to digest the US-China talks agreement, but there were few other catalysts, and it moved in a directionless search for momentum.

In the minutes of the ECB Council meeting, the euro briefly rose as signs of European economic bottoming appeared, but it did not sustain.

Dollar/yen continued to hover around 110, but after the option cut, it clearly broke through 110 and rose to 110.20 on the FIX.

There is growing attention on whether it will continue to move past the previous high and head toward the mid-110s.

Since it’s the weekend, we will be cautious with position adjustments, and today too, with few materials to guide direction, we will watch whether it rises.

◎ Today’s Points of Focus

1) Risk-on Market

With Middle East risk easing, US-China talks signed, and the US Congress approving USMCA (new NAFTA), most of the anticipated catalysts have concluded, turning into a risk-on environment.

Remaining point of attention is Brexit in the UK, but moving into the transition period at the end of January is almost certain and already priced in.

With the risk factors cleared, stock prices have remained firm, and the three major US stock indices are at new highs.

The US is engaging in stealth QE; the dollar is reacting more to stock gains than to dollar weakness.

How long this will last is unclear, but the trend seems to be rising stocks, rising dollar, and a weaker yen in a risk-on environment, so I will continue to monitor movements in stocks and bonds to see if risk-on persists.

2) Resource Currencies

The risk-on environment, along with USMCA approval for Canada and US-China agreement for Oceania, has alleviated headwinds for commodity currencies.

In the absence of clear catalysts, I expect there may be some buybacks of commodity currencies that have been sold off previously.

In particular, Oceania currencies have sizable short positions due to US-China risk, so if the economy picks up, there could be a sharp unwinding of those shorts.

◎ Today’s Economic Calendar

Friday, January 17

11:00　CNY　China GDP

18:30　GBP　UK Retail Sales

19:00　EUR　Italy HICP (Consumer Price Index)

19:00　EUR　Euro area HICP (Consumer Price Index)

22:30　USD　Building Permits

23:00　USD　Harker Philadelphia Fed President speaking

Saturday, January 18

00:00　USD　University of Michigan Consumer Sentiment Index

02:45　USD　Quarles FRB Vice Chair speaking

03:00　USD　Baker Hughes Rig Count