Investors turn optimistic as the gathered events speed up (Daily analysis 19.01.2021)

The US dollar returns some of the recent gains as Wall Street is set to return from a long weekend. Equities soar, and commodities advance as markets await Janet Yellen's Senate hearing.

The EUR/USD pair moved back above 1.21. The GBP/USD exchange rate regained the 1.36 handle while the USD/JPY pair stalled around 104.00 mark. Trends that dominated in the fourth quarter, meaning the US dollar bear trend, skyrocketing equities and soaring commodities prices are taking a breather. Market participants were shocked by a sell-off in the US Treasuries market, triggered by expectations for a new, huge fiscal package in the US. Although the Federal Reserve prevented it from developing by assuring that it will not rush to abandon its emergency policy and cause a taper tantrum, investors are unable to pick up where they were left off in the first week of 2021.

The EUR/USD uptrend was impacted by the US dollar decline and a more constructive assessment of the euro's fundamentals. However, this year, the common currency underperforms against most of its peers. The economic outlook has deteriorated recently as COVID related restrictions will have been sustained till the end of March, which results in dire conditions for services. Today's ZEW reading did not add to woes; however, it points out that German business remains optimistic and chooses to look through recent troubles. Simultaneously, the comeback of political uncertainty in Italy has had a limited impact, but for sure should be seen as a clear euro negative. On Monday, Italian PM Conte has secured a vote of confidence in the parliament's lower house and faces a vote in the Senate. In the case of a loss, Conte will be forced to resign.