India’s unwanted Covid-19 record hurts crude oil; ECB eyed

 
The US markets rallied sharply yesterday to erase losses suffered on Tuesday, lifting foreign currencies and metals as the dollar sold off amid the risk-on trade. But demand concerns stemming from India hurt crude oil. The big mover was the Canadian dollar after the Bank of Canada brought forward its projection on first rate hike to the second half of 2022 in a surprise move. The Loonie has stopped rising for now as investors keep an eye on crude prices and risk sentiment. Will there be follow through in risk appetite today? The markets have started positively in Europe, but let’s see it the rising infection rates in India and some other parts of Asia will come back to haunt investors.
 
India epicentre of Covid - bad news for crude and INR
 
It is worth watching the USD/INR and crude oil prices as India records the world's highest single-day rise in coronavirus cases, exceeding 300,000 infections for the first time. India is one of the largest crude consumer nations in the world. Traders have pushed the price of oil lower sharply over the past couple of days on expectations of reduced demand. If the situation deteriorates, oil prices will likely fall further.
 
 
All eyes on ECB’s Lagarde
 
ECB day arrives, bringing the euro and EU stocks into focus. No changes are expected. ECB President Christine Lagarde will probably re-iterate that the euro area will need intensified support due to recent spike in Covid infections and lockdowns, even as the European governments have finally got their act together on the vaccinations. Unlike the BOC head yesterday, the ECB president will very much remain dovish. She is likely to say that the ECB intends to continue buying bonds at an accelerated pace through June.
 
Fed to follow footsteps of BOC?
 
Investors are slowing turning their attention to Fed’s meeting next week. Will the Fed do a BOC and surprise the markets with a hawkish decision? That’s what investors are going to be wondering now, which may limit the dollar’s downside from here in my opinion. The world’s largest economy is in a much better position compared to a few months ago, thanks to government stimulus and the fast pace of Covid vaccinations. So far this hasn’t prevented the Fed from keeping the QE taps wide open. But if the improvement in data continues, it will only be a matter of time before the Fed tapers emergency stimulus measures. Against this backdrop, the dollar could be on the verge of a comeback.
 
Source: ThinkMarkets and TradingView.com
 
Meanwhile US jobless claims and existing home sales are among key data from North America.