Date Tuesday 16th February 2021
Direction

This morning we have a broadly weaker dollar alongside better risk sentiment from the vaccine rollout leading to ample money supply, and higher commodity prices.

Drivers

It is a fairly quiet start to the week with most of Asia and the US out.  The FTSE outperformed (+2.5%) and E-minis were up 0.5 per cent. Notably, with VIX breaking below 20, this could drive further short-term systematic re-risking from CTA funds.

WTI prices rallied above USD60/bbl (+1.1%) alongside supply constraints out of Texas due to extreme weather (est. 1mio barrels a day temporary cut), leading to CAD and NOK to outperform in G10.  JPY underperformed, as USDJPY rallied alongside higher US nominal yields.

Copper prices climbed to the highest level since 2012 (+0.6% to $8330).  According to BBG, production guidance from the top 25 copper producers indicates the market may be in a sizeable deficit this year.

Elsewhere, growing confidence that all five Western vaccines are very effective at preventing severe symptoms, with zero hospitalizations or deaths. This was according to a post-vaccination coronavirus infection trail across nearly 75,000 participants (including in South Africa and Brazil). With vaccines continuing to be rolled out, the fact that these vaccines have prevented severe disease and death bodes well for the reopening and reflation theme.

The scope and speed of any reopening will now become a politicians vs the scientists debate.

Market Updates

EURUSDThe euro is facing resistance at the 200-period SMA despite the risk-on sentiment in equities. The Dollar remains under pressure with the current vaccine rollout optimism, however a continued rise in the US Treasury yields may weigh over the equities and boost demand for the dollar. Today, a big miss on the German ZEW Economic Sentiment and EU GDP could trigger a sell-off on the pair.

GBPUSD  The Cable hit our 1.3950 target as Britain’s coronavirus infections hit the lowest since October 2020. Any pullback remains a buying opportunity targeting 1.40 as the progress in coronavirus vaccination, along with expectations for a massive US fiscal spending plan will keep the bullish narrative alive for now.

USDJPYUSD/JPY a key currency pair to watch today as it runs up to test the 105.60 / 105.70 resistance area coinciding with the 200-day moving average (daily chart) despite the US dollar weakness against major currencies. The Nikkei’s rapid rise to a 30-year high above the 30000 mark has stunned many traders but has also contributed to weakening the country’s currency. Technical indicators however favour a slide back to the 50-period moving average at 105.35 in the days ahead.

FTSE 100  A recent study showing improvement in UK’s Covid infections are favouring the mood this morning with the FTSE100 index expected to keep printing higher highs and higher lows. The breakout from our resistance level at 6590 pushed the index nearly 200 points in 3 days as investors look ahead to next Monday’s announcement of a timetable to significantly ease restrictions. From a technical perspective, the next level of resistance is around the 6840 area although if breached the UK benchmark may retest January highs around 6900.

DOW JONES –  Dow futures are still pushing higher this morning following Asian stocks higher with Japan’s Nikkei 225 closing above 30000 as investors remain optimistic over the rollout of coronavirus vaccines to keep the global economic recovery on track. Ten-year Treasury yields jumped to almost 1.25%, the highest level since March 2020 also on risk-on mood. However, reports that China is considering limiting mineral supplies to US defence contractors might dampen the mood with technical indicators favouring a slight pullback to our 31600-support level.

DAX 30 DAX futures are selling off slightly this morning despite another strong Asian session with the Nikkei 225 kicking on further above 30000. Although some profit booking is expected in the days ahead following an outstanding rally in global equities recently, positive vaccine story may keep providing the needed catalyst to push stocks in Germany to our next resistance levels at 14200 / 14300.

GOLDThird consecutive close in the red for the yellow metal on a low volume trading day with China and the US offline. Key $1815 support level continues to hold, with Gold still printing sideways with the 200-period SMA and 1825 capping higher prints. A breach of 1815-1825 is needed in today’s session to provide clearer direction.

USOIL – WTI Crude hit our support target at $60pbl in yesterday’s session, with technical indicators favouring higher prints for the day as millions in the US face blackouts, hit by a southern deep freeze, with power systems crippled by record low temperatures. $61pbl is the closest resistance target on the upside with supply taking a hit as US oil output fell by 1.7mbpd as pipelines in Texas froze.

 

 

 

 

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.

 

Disclaimer: This information is only for educational purposes and is not an investment recommendation. The information here has been created by SquaredFinancial. All examples and analysis used herein are of the personal opinions of SquaredFinancial. All examples and analysis are intended for these purposes and should not be considered as specific investment advice. The risk of loss in trading securities, options, futures, and forex can be substantial. Customers must consider all relevant risk factors including their own personal financial situation before trading.