The global forex market went into a defensive posture expressing and hedging the risk-off views through high beta to risk currencies. Given the Canadian dollar’s tight correlation to the S&P 500, the Lonnie quickly became a favoured short form both hedgers and speculators.

The stars aligned for EURO bears as the single currency was simultaneous getting hit with the risk-off ugly stick, overtly dovish European Central Bank (ECB) member chatter and extended EU lockdowns.

But this all-over-the-place communication from the ECB suggests some manoeuvring is going on behind the scenes and doesn’t put ECB President Christine Lagarde in a favourable light.

EURUSD bounced off 1.2050 support for now as the shift to negative rates remains unlikely given what would happen to the banking system That being said, the ECB’s verbal currency threats haven’t explicitly included their method for pushing back before, so the odds of a rate cut have gone up ever so slightly.

Emerging market stocks and currencies struggle under the weight of snail-paced vaccination rollout both domestically and in the developed market, driving US dollar safe-haven demand.

In USDAsia, some USD buying has gone through the market since New York opened after a relatively quiet, tight-ranged session in Asia. Flow-wise, there has been some buying of USDIDR, USDPHP, USDKRW and USDCNH in social size and small two-way interest in USDINR.

The ringgit and the rest of Asia FX remain ensnared in relatively tight ranges as the big picture does not change its outlook. Namely, an unprecedented amount of monetary and fiscal stimulus. A structural shift towards much more spending, a potentially unmatched economic rebound — whether starting in Q2 or Q3 — and a reasonable chance of inflation for the first time in several decades.

Gold slides further

With the FOMC only holding the interest course, it wasn’t enough to boost gold, especially in the face of a more robust “safe-haven demand for the US dollar. Compounding matters gold is getting sold again, lightly mind you to cover margin calls weighing on sentiment.

Although gold is down, we remain stuck in a tight range around. Still, the trend is looking less and less constructive, as the yellow metal struggles to recover from the selloff that took place at the start of the year, and with the historically bullish January seasonality soon to be taken out of the equation.

FX and Gold market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi