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US dollar flexes muscles against the yen, WTI on an express train

15 Feb 2021 01:13 PM
In today’s session, crude oil’s gains continued and the weeks trading began with a strong rally, reaching its highest level in over 13 months amid fears of rising tensions in the Middle East. Hopes of a US stimulus plan and easing closures could support further demand for fuel.
US crude is currently trading at $60 a barrel, levels not seen since January 8, 2020, and Brent crude is trading just below $63 a barrel, its highest level since January 22, 2020. Oil prices posted gains of 5% during the past week.
Declining Covid-19 infections, easing country lock-down measures, and a slow but steady “return to normal” in 2021 are all encouraging signs of an economic recovery and point to further increases in the global demand for oil – especially in Asia, the largest consumers of oil in the world.
This alongside other factors, most notably the production cuts from OPEC+, helped prices bounce back from 2020 lows with oil witnessing a recovery of more than 60% since last November - could it go as high as $70 dollars next?
Looking at the Japanese economy, it expanded better than expectation during the fourth quarter of 2020, continuing its recovery following the worst recession since the post-world war two period. This has been driven by a recovery in external demand that boosted exports and capital spending, contributing to the 3% growth in GDP in the fourth quarter. However, despite the positive data, the Japanese yen decline heavily against the US dollar and is currently trading near its lowest levels in almost a week, driven down by falling 10-year Japanese government bond rates (JGB) that are factoring in a transformation of the economy as it recovers from the repercussions of the Coronavirus. Meanwhile, US 10-year government bond yields have doubled to 1.21% since last August.
It is expected that the USDJPY will continue its bullish rally, targeting the level of 105.70, and that level will be crucial in the pair’s movements during the coming period. If that level is reached, then it could witness an acceleration in the dollar’s rise, targeting the 106 and 107 levels next. The pair could also see some pressure from the stimulus package that the US Congress are expected to pass this month.
In the rest of the currency world, British sterling is still significantly ahead of its competitors, reaching its highest level in 9 months against the euro, and its highest level in 34 months against the US dollar. This is driven by hopes of an economic recovery in the UK, with the country administering almost 15 million vaccines and delivering one of the most successful immunization programs in the world – 25% of adults having received at least one dose to date. This prompted calls for UK Prime Minister Boris Johnson to speed up the easing of the third lock-down and reverse the closure of British schools and colleges, as Britain continues to suffer from the worst economic recession in more than 300 years.
In the USA, former President Donald Trump was acquitted by the Senate after he was accused of inciting riots at the US Capitol on January 6 with the vote of 57-43 falling far short of the two-third majority required to convict him, even with seven Republicans joining the Democrats to attempt to convict Trump.

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