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· EUR/USD Weekly Forecast: Could US 4Q GDP and the Fed revive dollar’s demand?

It was a good week for the shared currency, as it bounced back against its American rival. The EUR/USD pair fell short of recovering the ground lost in the previous weeks, anyway moving towards the two-year high of 1.2349.

A scarce macroeconomic calendar, uneventful central banks and coronavirus-related concerns offset hopes that vaccine immunization will soon put an end to the pandemic and let economies return to the growth path.

New President, old issues

Joe Biden has become the 46th US president last on Wednesday, putting an end to the Trump-era. He signed several executive orders related to boost the fight against the coronavirus but also related to a key pipeline that carries Canadian crude into the US. President Biden decided to revoke the licence for Keystone XL, amid its controversial environment effects. Protecting public health and the environment are among Biden’s top projects. He returned the States into the Paris Agreement on climate change and pledged to return to the WHO.

There’s one thing, however, that Biden won’t change, and that’s the US relationship with China. The trade war is alive and kicking, under the shadow of the pandemic. Still, the relation between the two economic giants is nowhere near to getting better, moreover after China imposed sanctions to several Republicans on the final day of Trump in the office.

Uneventful ECB and dismal data

On Thursday, the European Central Bank had a monetary policy meeting. As widely anticipated, European policymakers left the current policy unchanged, foreseeing no changes to the current situation at least until March 2022. President Christine Lagarde repeated that the current policy would remain accommodative, but hinted no urgency on expanding stimulus.

Data wise, macroeconomic figures keep confirming that major economies are struggling to survive through the pandemic. Inflation in the Union held within negative levels in December, with the German annual CPI confirmed at -0.7% and the EU index at -0.3%. The ZEW survey showed that Economic Sentiment in the Union improved to 58.3 in January and to 61.8 in Germany, although the assessment of the current situation remains near record lows.

Minor data from the US was mildly encouraging, as Initial Jobless Claims decreased to 900K in the week ended January 15, while December housing-related data showed signs of improvement.

On Friday, Markit released the preliminary estimates of its January PMIs. The EU readings showed that manufacturing activity remained within expansion levels, anyway retreating from December levels. On the other hand, the services sector was the most hit by the recent lockdowns in Europe, with Markit indexes indicating contraction. US figures were encouraging, as the Markit Manufacturing PMI for the same month improved to 59.1 while the services index came in at 57.5, both above the previous and beating the market’s expectations.

Federal Reserve and growth updates

The US Federal Reserve is having a monetary policy meeting next Wednesday, the most relevant event of the week, although the central bank is expected to maintain its monetary policy unchanged. The US will publish December Durable Goods Orders earlier that day, seen posting a modest 0.9% advance. On Thursday, the country will release the preliminary estimate of the Q4 Gross Domestic Product, foreseen at 2.8% QoQ from 3.7% in the previous quarter.

Across the Atlantic, the macroeconomic calendar will be lighter. On Monday, Germany will publish the January IFO survey, while on Thursday, the EU will release its January Economic Sentiment Indicator. By the end of the week, Germany will unveil the preliminary estimate of its Q4 GDP, previously at 8.5% QoQ.

· Global bond funds see massive inflows in week to Jan. 20: Lipper

Global bond funds lead inflows in the seven days to Jan. 20 as hopes of big fiscal stimulus packages under the new U.S. administration under President Joe Biden increased bets of a swift global economic recovery.

Investors purchased $26.9 billion in bond funds in the period, the highest since June 2020, Lipper data showed.

For a graphic on Fund flows into global equities, bonds and money markets:

Equity funds also attracted higher inflow of $14.4 billion, as per the data.

An analysis of 12,717 equity funds, based on Lipper’s sector classification, showed that funds focused on information technology sector attracted $3.6 billion, followed by $2.2 billion into financials.

Meanwhile, money market funds faced $6.8 billion in outflows in the week ended Jan. 20, after five straight weeks of inflows.

For a graphic on Global fund flows into equity sectors:

· Biden’s stimulus may be too big amid economic recovery, should be targeted at those most impacted

President Joe Biden is trying to push through a $1.9 trillion stimulus program that many congressional Republicans don’t want and the economy may not need.

As it stands, the package includes direct checks to millions of Americans, enhanced unemployment benefits, a more than doubling of the minimum wage, aid to state and local governments and money for Covid vaccines and testing, among other things.

Republicans object to the plan for its hefty price tag and, in particular, the $350 billion earmarked for what is perceived as a bailout for poorly run localities.

But the issues run even deeper than that.

· South China Sea tension flares again as Biden takes charge

A U.S. aircraft carrier group led by the USS Theodore Roosevelt entered the South China Sea over the weekend to promote “freedom of the seas” at a time of U.S. concern about China-Taiwan tensions and Beijing asserting its maritime agenda.

· UK could become 'a failed state' without reform, former UK PM Brown says

Unless the United Kingdom is fundamentally reformed it could swiftly become a failed state as many people have lost faith in the way the country is governed by, and in the interests of, a London-centric elite, former Prime Minister Gordon Brown said.

“I believe the choice is now between a reformed state and a failed state,” Brown wrote in the Daily Telegraph newspaper. “It is indeed Scotland where dissatisfaction is so deep that it threatens the end of the United Kingdom.”

The five-year Brexit crisis plus the COVID-19 crisis have weakened the bonds that bind England, Wales, Scotland and Northern Ireland into a $3 trillion economy.

Brown said Prime Minister Boris Johnson should reform the way the United Kingdom is governed.

· ECB’s Rehn calls yield curve control nonsensical for euro area

The European Central Bank (ECB) Governing Council member Olli Rehn dismissed yield curve control as a tool to enhance the financing conditions in the euro area while speaking in an interview on Finland’s YLE TV1.

· Australia approves Pfizer vaccine, warns of limited global AstraZeneca supply

Australia on Monday approved the Pfizer-BioNTech COVID-19 vaccine for use but warned AstraZeneca’s international production problems mean the country would need to distribute a locally manufactured shot earlier than planned.

Vaccination of priority groups with the Pfizer vaccine is expected to begin in late February at 80,000 doses per week, Health Minister Greg Hunt told reporters.

Pfizer had told the Australian government it anticipated continuous supply but would provide global production guidance “in mid-February for March and beyond on a weekly basis,” he said.

· Californian dies hours after getting COVID-19 vaccine, prompting probe

A California resident who was vaccinated against COVID-19 died just hours later — and authorities are trying to find out why.

The Placer County Sheriff’s Office announced the death and the investigation Saturday in a Facebook post, but gave few details.

· Japan to hold coronavirus vaccination simulation

Japan will hold a coronavirus vaccination simulation in Kawasaki, Kanagawa Prefecture, on Wednesday, the minister in charge of vaccination efforts said.

Taro Kono, who also serves as administrative reform minister, revealed the plan as Japan prepares to begin novel coronavirus vaccinations by late February, after checking the safety and efficacy of vaccines.

· Japan likely to hit COVID-19 herd immunity in October, months after Olympics: researcher

· Japanese PM faces mounting pressure over pandemic response

Japanese Prime Minister Yoshihide Suga faced renewed pressure on Monday over his handling of the coronavirus pandemic, with a new opinion poll showing many believed the government was too slow to respond to the latest wave of infections.

· New Zealand confirms first COVID-19 case in months, sparking Australia travel halt

· France probably needs new lockdown as early as February -top adviser

France probably needs to move into a third lockdown, perhaps as early as the February school holidays, because of the circulation of new variants of the virus, the government's top medical adviser on COVID-19 policy said on Sunday.

· Australia wants its ‘mutually beneficial’ relationship with China to improve, Treasurer Frydenberg says

Australia will continue advocating for its national interests but would like to see strained relations with China improve, Australian Treasurer Josh Frydenberg said Monday.

“The China-Australia trading relationship is ... very important,” Frydenberg told CNBC’s Will Koulouris. “It’s mutually beneficial. Our resources have helped underpin China’s economic growth and we welcome that.”

“At the same time, China has been a very important market for Australia and our exports to China has helped boost incomes here in Australia – been an important source of revenue and job creation,” Frydenberg told CNBC, as part of the network’s coverage of the Davos Agenda.

· Italy's prime minister looking to resign, then form new government: papers

Italian Prime Minister Giuseppe Conte is close to resigning, but then hopes to form a new government that can count on a broader majority, national dailies reported on Monday.

“My aim is to find an agreement that gives a clear political perspective to govern until the end of the legislation,” Conte said, according to La Repubblica newspaper.

· U.S. oil refiners set for worst earnings quarter of the pandemic

U.S. refiners are girding for a painful slate of fourth-quarter earnings, reflecting the pressure of rising crude prices, weak demand due to renewed COVID-19 travel restrictions, and higher costs of associated with blending of renewable fuels into their products.

Seven U.S. independent refiners are projected to post an average earnings-per-share loss of $1.51, down from a loss of $1.06 in the third quarter of 2020, according to IBES data from Refinitiv.

Both Credit Suisse and Tudor Pickering Holt cut lowered the price estimates of every U.S. independent refiner for the fourth quarter.

· Oil prices edge up, but impact of lockdowns restrain gains

Oil prices edged up on Monday as a weaker dollar offset fresh concerns about the hit to global fuel demand from renewed lockdowns to curb the spike in COVID-19 infections.

Brent crude futures for March rose 32 cents, or 0.6%, to $55.73 a barrel by 0729 GMT, while U.S. West Texas Intermediate crude for March was at $52.62 a barrel, up 35 cents, or 0.7%.

Libya’s Waha oil has resumed production after pipeline repairs while output from Kazakhstan’s giant Tengiz field was disrupted by a power outage on Jan. 17.

China reported an increase in new COVID-19 cases on Monday, casting a pall over demand prospects in the world’s largest energy consumer, the main pillar of strength for global oil consumption.

· Thailand to sell $2 billion savings bonds to finance stimulus measures

Thailand will sell 60 billion baht ($2 billion) of government savings bonds next month to help finance stimulus measures to mitigate the impact of its latest coronavirus outbreak, the finance ministry said on Monday.

The government last week announced new stimulus worth $7 billion to support domestic activity hit by the spread that has infected 9,450 in just over a month.

The bonds will be offered in three maturities, with five- and 10-year bonds giving an average coupon of 2.0% and 2.5% per year, respectively, and 15-year bonds offering a fixed coupon of 1.8%, the ministry said in a statement.

Reference: CNBC, Reuters, FXStreet, ForexLive