US Open Note – Euro capitalizes on battered dollar; Canada unveils new fiscal plan

Christina Parthenidou, XM Investment Research Desk

Europe in green as dollar struggles

The persisting weakness in US Treasury yields and some encouraging vaccine news in Europe left the dollar bruised on Monday.

The vaccine success in the US and the optimistic outlook for the economy, although supportive to the greenback, have become old news for traders, while the stabilization in US Treasury yields suggests the Fed is likely becoming more successful in convincing markets that monetary policy will remain accommodative at current levels until substantial progress is made towards full employment.

The sharp decline in the dollar helped the euro to crawl above the 1.2000 resistance and hit a 1 ½-month high of 1.2040 during the European trading hours. Perhaps, headlines reporting an extra supply of 100 billion doses from Pfizer/BioNTech to the European Union have bolstered the rally and brightened the outlook for the second quarter.

The New Zealand dollar gained the most against the battered greenback, followed by the British pound, which managed to accelerate above the 50-day simple moving average and enter the 1.3900 territory for the first time in a month.

The improving sentiment in Europe led the STOXX 600 index to a fresh record high, but the upside was short-lived, with the index turning neutral on the day. On the other hand, US futures were flashing red, signaling a blurry start to the week.

In commodities, gold is looking to close above the 38.2% Fibonacci retracement of January’s downfall around $1,784 after completing a bullish double bottom pattern. Tensions between the US and Russia, as well as with China could feed the upside correction in the safe-haven metal.

Canada to announce ambitious fiscal spending

Canada will come under the spotlight in the remainder of the day as Prime Minister Justin Trudeau is scheduled to unveil his first fiscal plan since before the pandemic hit at 20:00 GMT. The bill is expected to be ambitious, worth more than C$100 billion.

The new spending will add to the mounting fiscal debt the country is already facing, but it could be another chance for Trudeau to build his political confidence and help the economy live through the health crisis as a third wave of infections weigh. The loonie could benefit if the fiscal stimulus arrives larger than expected, though the Bank of Canada’s policy review on Wednesday could be a bigger challenge for the currency. Currently, a long-term descending trend line is navigating dollar/loonie southwards, with the pair consolidating its losses near the 1.2460 support region.

Data releases to watch

Quarterly CPI inflation readings out of New Zealand will be the next key event to watch at 21:45 GMT, while early on Tuesday, UK employment figures could move the pound at 06:00 GMT.