Date Monday April 19, 2021
Drivers
This week’s main event will be the European Central Bank (ECB) latest rate decision and monetary policy statement on Thursday, plus the monthly trilogy of UK key numbers: unemployment, inflation, and retail sales.

For the ECB, a full assessment of the pace of asset purchases will not happen until June so this week’s meeting is likely to be uneventful, but the market will be focused on the tone, which is likely to center around the continued downside risks of the virus.

For the UK, inflation will be the main cause for concern, following a recent survey of more than 5,800 businesses in the UK with a third of the respondents saying their prices will increase in the next three months.

Across the Atlantic, US earnings season is now heating up, having gotten off to a good start with big banks last week. This week sees 70 of the S&P500 companies report results, with Netflix the first of the high-growth tech stocks to report.

Canada is deploying additional health care workers and equipment to help Ontario which is struggling with a sharp rise in Covid-19 cases. Canada Federal Budget is also due today with PM Trudeau set to unveil CAD100 billion of additional spending over the next three years on initiatives such as childcare and green energy. The BoC statement is due on Wednesday. The market is expecting bond purchases tapering to CAD3 billion per week. Data has been strong, but we expect the BoC to be more cautious given the deteriorating virus situation.

Short CADJPY is particularly attractive as too much optimism has been priced into the Canadian economy given that they are currently facing tighter restrictions as the virus situation deteriorates sharply. Expecting a pull back to 86.00 with possibility of a deeper correction to 85.43 Ichimoku Cloud top.

The US Dollar is coming back bid to start the week after lower US yields took the buck lower across last week. US yields still haven’t recovered but seems some dip buyers emerging in USD after the sharp move lower last week. EURJPY under pressure after topping out again ahead of the March high at 130.69. EURUSD bringing in technical sellers after forming a double top last week, high of 1.1995 on Friday. Short EURUSD still makes sense. Next level on the topside being the 100-day MA at 1.2058 in case the 1.1985 resistance is taken out.

We still expect the same story of divergence between US and EU growth due to the speed of vaccine rollouts. The Fed will be increasing rates a long time before the ECB does and that is when this divergence trade will really come into play. We feel as if pull back in US yields has run its course and the position reduction move is over.

Finally, USDJPY couldn’t break back above 109.00 last week, and it feels that cross JPY is in for a deeper pull back as positioning that was put on in the run up to Japan fiscal year end is yet to fully capitulate.

Market Updates

EURUSD The Euro finished the week on a softer tone after failing to crack the 1.1985 level. This week investors prepare for Thursday’s ECB monetary policy and interest rate decision followed by the Eurozone PMI report on Friday. Until then, the short-term trend remains bullish, technically speaking, however the 1.1985 level is still a key pivotal resistance level. A sustained move above it will signal a shift of the long-term from bearish to bullish.

GBPUSDAfter moving above the 200-period moving average on the hourly timeframe, and trading through the 1.38 resistance now turned support, GBP has finally pivoted back to bullish against USD after a monthly long correction. Moreover, this morning, the British Pound is attempting to cross the 1.3845/50 trendline resistance, with a trade through it to trigger more buying interest with 1.3915 as next upside target.

USDJPYUSDJPY fell below the ¥108.60 support, on a weak US dollar, but on the daily scale, the trend is still up despite sell orders around ¥108.80 – ¥109 limiting upside since the beginning of April. In addition, the RSI on the hourly timeframe is almost below 30 signaling fading downside momentum, and therefore a correction higher is expected in the near term..

FTSE 100The FTSE100 is still firmly above the 7000-mark despite fears of an Indian Covid-19 variant in the UK, that may slow the recovery, but sentiment remains positive for now after data showed the housing market in the UK rose 2.1%, which is a big jump and another monthly record high. A trade through the 7025 level will trigger more upside action, however, a slide below the 50-period moving average around 7000 is seen as a short-term bearish signal.

DOW JONESThe Dow Jones Industrial Average dashed to all-time highs last week amid strong economic data, while earnings season is heating up this week with 70 companies in the S&P500 due to report after strong results from big banks boosted sentiment. Technically, the near-term trend is still bullish with the Dow index trading above the 50-period moving average, however the RSI is pointing lower suggesting the correction is still ongoing with 34000 as nearest support..

DAX 30The German DAX ended Friday’s session on a fresh record close propped up by robust economic data out of the US and China, topping 15500 in early trade today. Upbeat earnings from Daimler lifted carmakers, further boosting the index higher, as focus shifts to ECB’s rate decision along with Lagarde’s briefing on Thursday. A short term lower high below 15540 favors a pullback lower with 15400 as the closest support target.

GOLDNew Covid variants and increasing global cases pushed the yellow metal towards 7-week highs, ending Friday’s session above $1770, and continuing to hold between $1770/$1780-$1784 support/resistance levels in early trade today. A weaker greenback along with retreating US10Y yields should continue to support the safe haven in the long run, while an hourly close below $1773 would favor a retracement lower with $1767 as the next closest support target.

USOILRising global Covid-19 infections to record highs is weighing down on investor sentiment in early trade today, after ending the week on better-than-expected economic data out of the US and China. All eyes this week on the IEA’s Global Energy Review to be released on Tuesday along with inventory data. $63.35 resistance level to direct today’s session, as a failure to print an hourly close above it will confirm a lower high with $62.50 as next support target.

 

 

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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