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EUR/USD pushing back towards the 1.21 handle

The risk-on move manifested in forex markets last night.

EUR/USD Source: Bloomberg

Sentiment shifts and US stocks bounce back in a broad-based rally

US jobless claims drop below 500k for the first time since pandemic

Copper pops, iron surges to new highs, and gold regains its shine

Bank of England strikes a hawkish tone, but GBP/USD dips below 1.39

US stocks bounced back last night, rallying hard into the close, to cap-off what was a high-volume day’s trade for the market. The US 500 rallied by 0.82%, in a broad-based climb that saw every sector finish higher, and 77% of stocks close in positive territory.

Arguably, there was no clear thematic driving intermarket action – it might be best described as a wholesale move back into stocks, at the back end of a soft-ish week for equities, and ahead of tonight’s US non-farm payrolls.

Solid US data certainly helped the market along – though it ought to be said, it didn’t seem to change the dynamics in bond markets, which, probably to the benefit of stocks, saw yields steady if not slightly lower overnight. US jobless claims figures were published for the week, and revealed that new claims for unemployment benefits in the country fell below 500k for the first time since the pandemic began.

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The risk-on move manifested in forex markets last night

The US dollar gave-up ground on its recent mini-revival, with the EUR/USD pushing back towards the 1.21 handle, and commodity currencies broadly climbing, with the AUD/USD popping to the top of its recent range not all too far from 78 cents.

The strength in commodity currencies came, naturally, as commodity prices continued to rise. ETFS Brent Crude prices fell for another session. However, copper still looks as though its providing a strong prognosis for the global economy, and of local concern, iron ore ripped higher again by 5.2% and to new record highs, arguably revealing just what market participants think about the risk to Australia’s mineral exports from souring China-Australia relations.

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Gold prices also surged, after several weeks of consolidation

Spot Gold climbed by around 1.5%, to close US trade at about $US1815 per ounce, most likely due to the combined influence of a weaker US dollar, along with a key technical break above price resistance.

The move also closes some lost ground gold prices sustained, as real yields continue to fall as implied measures of future inflation rise.

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Chart 1 Source: IG charts

The Bank of England (BoE) was another big event last night

But despite upgrading their GDP forecasts for the UK economy to the strongest growth rate since World War II, and discussing the prospects of tapering its asset purchasing program, the BoE meeting did little to really rock markets – the GBP/USD fell with below 1.39 in sympathy with a dip in gilt yields, which gave a small bump to the FTSE 100, which closed trade up by 0.52%.

It’s shaping as a fairly mixed start for Asian stocks, with SPI Futures suggesting a 0.28% pop for the Australia 200 at the open.

Much of the day will be spent speculating and positioning for US non-farm payrolls tonight. But locally, we will get the Reserve Bank of Australia's Statement on Monetary Policy, which ought to add colour to the upgraded set of economic forecasts that the central bank provided at its meeting on Tuesday.

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