ECB on hold, Norges bank to remain hawkish (Daily analysis 21.01.2021)

Risky assets and currencies received a boost as President Biden took office due to hopes of a massive fiscal stimulus. Equities are traded mostly higher with tech stocks leading the way as the inauguration went smoothly. Today, the ECB meeting and US labour data are in the limelight.

The EUR/USD pair's bounce from the 1.2050 area is losing momentum ahead of 1.22 mark. Therefore, a tight range should prevail. Similarly, the GBP/USD pair's upsurge has faded around the 1.37 handle, but no significant pullback has emerged despite several failures to push the pound sterling higher. The Australian dollar is one of the currencies trading on the front foot, and AUD/USD looks set to rise towards recent highs coming at 0,78.

ECB on hold and the Norges bank to remain hawkish

The most important event of the day is the ECB meeting, which should turn out to be a non-event from the FX markets perspective. The main risks for the common currency should be associated with the threat of potential focusing on the euro's strength's negative side effects. As long as the Governing Council refrains from making rate cuts more probable, it should not derail the EUR/USD exchange rate. We remain bullish on the EUR/USD but assume that the US dollar downtrend will take a breather due to the dire pandemic and economic situation and insufficient vaccinations progress. Market participants will look into initial jobless claims data, which painted a worrisome picture of the jobs market in the last couple of weeks. However, no relief should be expected on this front as long as the COVID related restrictions remain in place. The Norges Bank meeting should bring no new developments and confirm that the Norges Bank is the most hawkish central bank in the G-10 space and, therefore, the krona, which has been the strongest currency this far year, should remain firm.