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Today’s Economic Reports: Retail Sales for December were -0.7% vs. the 0.0% estimate. Retail Sales excluding automobile purchases were -1.4% (-0.2% est) and Retail Sales excluding autos and gas were -2.1% (-0.3% est). Empire Manufacturing Survey was reported at 3.5, below the 6.0 estimate. PPI Final Demand (prices received by domestic producers for finished goods) were +0.3% in December vs. 0.4% estimate. In summary today’s data was a trifecta of disappointing misses and underscores the recent economic downturn tied to Covid-related shutdowns.

The overnight markets reflect a classic shift to safe assets: higher JPY, higher USD, higher CHF, lower equities, lower oil, lower gold, lower Treasury yields.

Overnight dollar gains:

+0.86% vs. AUD

+0.83% vs. SEK

+0.77% vs. NOK

+0.72% vs. NZD

+0.69% vs. CAD

+0.62% vs. GBP

+0.37% vs. EUR

+0.36% vs. DKK

Yesterday Fed Chairman Powell confirmed the Fed's current stance on the policy rate: "When the time comes to raise interest rates, we will certainly do that. And that time, by the way, is no time soon."

Today the Fed's Kashkari is scheduled to speak at 11:30 a.m. ET

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Initial Weekly Jobless Claims for the week ending January 9^th increased 965k vs. a 789k estimate. This is the highest level of weekly claims since August of 2020. Combined with last Fridays Nonfarm Payrolls disappointment (-140k vs. +50k estimate), the employment landscape has taken a recent and unexpected slide into negative territory.

Despite the jobs data, global equities are holding onto overnight gains in anticipation of President elect Biden’s $2 trillion economic stimulus plan which will be unveiled later today.

The dollar is mixed vs. its G10 peers overnight with losses vs. the AUD (-0.17%), NZD (-0.13%), SEK & MXN (-0.04%, and CAD (-0.03%). Commodity/emerging market currencies are higher on positive risk sentiment ahead of the Biden stimulus plan details. Today’s dollar gains:

+0.44% vs. NOK

+0.27% vs CHF

+0.26% vs. DKK

+0.25% vs. EUR

+0.16% vs. JPY

+0.09% vs. GBP

The U.S dollar index is higher by 0.14% at 90.492, just below 90.500 resistance. Treasury prices are lower (higher yield) as the benchmark 10-Year Treasury touched 1.116% overnight.

Fed Chairman Powell is scheduled to deliver remarks and participate in Q&A in a Princeton Economics webinar today beginning at 12:30 ET.

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December’s U.S. Consumer Price data released today met or exceeded estimates and revealed a tangible increase in inflation. CPI MoM was up 0.4% (+0.4% estimate) and CPI YoY increased to 1.4% (+1.3% estimate). The signal of higher inflation has led to higher treasury prices (lower yields) and buoyed the dollar in trading today.

The dollar is higher against all its G-10 counterparts, the widest gain +1.25% vs. the SEK, +0.57% vs. NZD, +0.56% vs. NOK, and +0.48% vs. AUD. The dollar is also being supported by a move to safe assets ahead of President Trump’s second impeachment vote today. The U.S. dollar index is higher by 0.20% at 90.277.

Federal Reserve Governor Brainard speaks today at 1:00 p.m. ET and Fed Vice Chair Clarida is scheduled to speak at 3:00 p.m. ET.

USD/MXN is trading below 20.0000 after trading as high as 20.2600 on Monday. Resistance is at 20.2500 and support at 19.6000.

USD/CAD is trading near the mid of its recent 6-week range with support at 1.2625 and resistance at 1.2950. The long-term outlook is for a continuation of U.S. dollar weakness.

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The dollar’s performance overnight is a mix of minor gains and losses vs. the G-10 pairs. The U.S dollar index is holding onto a slight gain of +0.02%, attributed to gains vs. the EUR (+0.03%) and no change vs. the JPY.  The dollar’s losses are concentrated in the commodity currencies, tied to a surge in oil prices which have gained 1.21% in trading today.

MXN +0.21%

CAD +0.13%

AUD +0.12%

NZD +0.07%

The GBP is leading the gains vs. the dollar +0.53% following comments by BOE Governor Bailey on the issues he sees with negative interest rates. The BOE recently stated that it would not rule out negative rates so Bailey’s overnight comment is being interpreted by the market as a possible shift in rate policy.

Tomorrow’s CPI data for December will be closely monitored for signs of inflation. The estimate is for +0.4% in the MoM reading compared to November’s +0.02%.

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Disappointment from Friday’s Nonfarm payrolls (-140k vs. +50k estimate) set the tone for today’s shift away from risk to safe assets. December’s payrolls were the first decline since April of last year. The Unemployment Rate improved from 6.8% to 6.7% but was not enough to offset the negative change in private payrolls which declined 95k vs. an estimated gain of 25k. The impact of December’s COVID-related lockdowns in the U.S. were a clear hit to an already fragile economy and global markets are reacting today.

The dollar index is higher for the third consecutive day with the DXY up 0.55% to 90.590. The DXY has gained 1.18% since Jan 6. Momentum could drive further dollar gains to 91.000, just below resistance at 91.250.

The dollar’s primary gains are vs. the commodity currencies, following oil’s overnight decline of 0.96%.

NOK -1.56%

MXN -1.15%

NZD -1.01%

CAD -0.98%

AUD -0.94%

USD/CAD: support at 1.2675 prevented further CAD strength over the last five weeks. Now that the CAD has turned lower the market is eyeing resistance at 1.2900.

USD/MXN: after trading as low as 19.5967 last week the USD/MXN is now back above 20.0000 and testing the high end of the November-December range at 20.2500.

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The U.S. Dollar Index is higher today by 0.25%, rebounding after making a fresh multi-year low in trading yesterday (89.209). Weekly and monthly charts continue to suggest lower levels for the DXY, with next support at 89.000 and major support at the Feb 2018 low of 88.250. The DXY’s steep decline since March of 2020 (-12.64%) could entice some profit-taking. If that happens the DXY could rally to as high as 92.000 and still maintain its long-tern downward trend.

The dollar is higher against all the G10 currencies, the widest gain vs. the AUD (+0.69%) followed closely by the NZD (+0.66%). The dollar is +0.52% vs. the JPY with yen weakness partly attributed to a growing number of COVID-19 infections.

Other dollar gains:

+1.24% vs. MXN

+0.43% vs. CHF

+0.38% vs. DKK & EUR

+0.36% vs. SEK

+0.28% vs. CAD

+0.21% vs. NOK

+0.07% vs. GBP

U.S. Treasury yields surged yesterday with 10-year yields crossing above 1% for the first time since the March outbreak of COVID-19. Higher yields coincided with confirmation of Joe Biden’s election by Congress. Biden’s victory, combined with the Senate’s swing to Democrat control, suggests larger amounts of economic stimulus to offset the coronavirus may be coming. The Fed views more stimulus is a positive step.

U.S. Jobless Claims were released today at 787k, better than the 800k estimate. Nonfarm Payrolls data will be released tomorrow with the Unemployment Rate forecast at 6.8% compared to the prior 6.7%.

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The greenback is stronger by a slim margin in trading today, its third gain in as many days. Congressional approval of a $900 billion aid package is lifting the dollar with the DXY +0.39% today and +0.60% over three days. The dollar has also been helped by resurgent concerns of COVID-19 infection rates, prompting a move to safe assets.

Commodity currencies are leading the declines vs. the dollar on weaker oil prices (crude oil has dropped 3.58% since Friday’s close). The NZD is -0.79%, SEK -0.73%, NOK -0.66%, AUD -0.62%, MXN -0.58%, and CAD -0.41%.

USD/CAD has moved above weekly resistance at 1.2850 and a test of next resistance at 1.3000 now appears likely. Despite recent weakness the long-term trend of CAD strength will remain in place until a weekly close above 1.3150.

USD/MXN: while the peso is weaker today in line with prevailing dollar strength, the USD/MXN is still trading within recent weekly ranges. Resistance is seen at 20.5000 (100-period moving average) and support at 19.7500 (200-period moving average, long-term trendline, and lower Bband).

The Aussie dollar has finally encountered meaningful resistance, ending the AUD/USD’s winning streak at 7 consecutive weeks during which time it gained 8.51%. Resistance is at 0.7625 (monthly congestion level from early 2018). Support is in the range of 0.7350-0.7400. The pair is -1.23% this week. The long-term view still favors additional AUD gains with a new push not likely until after the new year.

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Currencies traded in narrow ranges overnight but continued to maintain selling pressure on the U.S. dollar. The dollar index is pinned near its lowest point of the year at 90.421 and looks vulnerable down to 89.000 (lows from early 2018). Looking back, the break below 95.000 in late July was a key signal for imminent dollar weakness.

The pound strengthened the most overnight as seen in GBP/USD with a gain of 0.35%. The GBP/USD is trading near the midpoint of its recent range (high of 1.3539 and low 1.3133) at 1.3373. A break above 1.3550 or below 1.3100 could be a decisive signal for the future path of the pound post Brexit.

The AUD/USD traded above 0.7570 the last two days but only managed closes at 0.7533 and 0.7537. And today the pair is higher by only 0.04%. Failure to maintain momentum could entice selling AUD to lock in recent gains. Support is in place at 0.7450 with further room to drop to 0.7400 while keeping the current trend intact.

USD/CAD is lower by 0.22% today, trading just above 1.2700 support. Long-term support is at 1.2640 (100-period moving average) and lower at 1.2375 (200-period moving average).

USD/MXN traded to resistance near 20.2500 yesterday, reason enough to spur a round of dollar selling today. The peso is stronger by 0.76% and on track to try support at 20.0000.