Date Tuesday 12th January 2021
Direction

Market wants to be risk on, and short USD, but are holding back this morning and will wait t see how the US CPI data prints on Wednesday.

Drivers

The main driver for today is that the FOMC members have agreed about discussing tapering towards the end of this year.  Bostic noted that a strong US recovery could lead him to support FOMC tapering by the end of this year.  Kaplan again stating in comments this morning that if US economy recovers then the Fed should be discussing tapering later this year.

These comments have added to the move higher in US yields and the focus will now turn to US CPI data on Wednesday.  This has allowed US yields to push higher, taking USD with it and squeezing out shorts.

This approach gives greater focus to employment and inflation, so this Wednesdays CPI print has added importance.  Overall, the US economy is still in a difficult spot with the number of virus cases still rising and the NFP was down 140k last week.  So, for many commentators it is perhaps too soon to be worried about tapering.

If the US CPI comes in weaker   on Wednesday it gives the green light to get back on the USD lower trade.

Numbers to Watch
  • USDJPY traded up into the ichimoku cloud yesterday, positioning is cleaner and may encourage some to fade the rally.
  • EURUSD traded down to 1.2132 and now the positioning   is cleaner the trend higher can resume – depending on where US yields go

Market Updates

EURUSD – The euro found support at the 200-period SMA before surging higher despite the cautious market mood and higher US Treasury Yields. If the bond yields take a breather today, the euro bulls may find enough momentum to break and hold above 1.2170 and push prices back above 1.22.

GBPUSD The pound hit our short support target yesterday at 1.3460 before surging back higher again as investors seem to be buying dips unaffected by concerns of a 3rd nationwide lockdown in the UK. The Sterling recovered most of the day’s losses however the rally in the US bond yields may put a lid on further rallies. From a technical perspective if GBP/USD prints above the 200-period SMA making higher highs, then a short-term trend reversal may happen otherwise we expect the pair to slide slightly again today.

USDJPYThe dollar/ yen advanced for a fourth consecutive day, breaking above the 200 SMA and currently testing a multi-month trend line. This counter-trend move was supported by rising US Treasury yields, as the yield of the benchmark 10-year note surged to 1.14%, its highest since March of last year. If the bond yields keep on rising, then the pair has still much room to the upside. If 104.20 is taken out, then 104.70 will be our next target.

FTSE 100 – Total retail sales in the UK rose only 1.8% yearly in December below the three-month average growth of 2.5%. On a month-for-month basis sales rose 4.8% annually below 5.9% expectations though mainly because the unprecedented restrictions during the holidays season. Investors, however, are still optimist after UK Health Secretary Matt Hancock said the government was on track to vaccinate 15 million by mid-February. Looking ahead, the FTSE100 index is still expected to remain within the 6700 and 6880 trading range.

DOW JONESThe Dow hit our short support target at 30800 yesterday printing slightly below it before rallying back swiftly as investors weigh the prospect for extra US fiscal stimulus after Democrats swept Congress and Biden promised to push for more direct stimulus checks to Americans. Today, the focus will be the historic impeachment of President Trump accused of inciting Wednesday’s violence at the Capitol Building. While there are concerns that these moves may create more unrest and more demonstrations, the promise of brighter days ahead on the back of vaccinations and extra stimulus will make it difficult for the Dow to sell off with technical indicators favouring a move higher.

DAX 30 –  The German DAX hit our short support target at 13900 yesterday and almost hit our second support level at 13800 but investors are still seen buying dips in equities as COVID-19 vaccine roll-out offer hope of brighter days ahead. In the futures market the DAX is up by 50 points this morning although a lack of stats today will leave European indices in the hands of COVID-19 headlines and updates from Washington.

GOLD – Gold attempted to hit our short support target at 1825 in yesterday’s session before breaching the 1850 resistance target despite a stronger greenback and US10Y yields climbing to March highs (currently printing at 1.15%). 1860 resistance level to direct today’s session, as a failure to print an hourly close above it will indicate ongoing bearish momentum with 1850 support level next in sight.

USOILWTI Crude ended a 4-day win streak, though holding above our $51.60 support level despite rising coronavirus cases and concerns over shale production flooding the market. From a technical perspective the $52.50 resistance is the next level to breach, favouring further upside with $53.50 as the next resistance target ahead of today’s API weekly inventory data.

 

 

 

 

Rony Nehme

Rony Nehme

Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

 

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