Date Thursday 1st of April 2021
Direction

Equity markets printing higher on hopes of further stimulus, while resurging Coronavirus and lockdown extensions should keep risk on sentiment on a leash

Drivers
President Joe Biden unveiled a USD2.25 trillion infrastructure plan to shore up the nation’s economy, and the market reacted positively, with the Nasdaq Composite – now back above 13000 – leading the move higher. This morning, stocks are set for an upbeat start, shrugging off fresh lockdown measures in France that will begin on Saturday, and Japan applying tighter virus measures, highlighting the unevenness in the recovery. The US and UK are marching ahead with vaccinations and reopening their economies, whilst the situation across much of the rest of the world deteriorates.

On the back of Biden’s new spending spree, fresh inflation concerns have boosted gold prices back above the $1700 handle with the $1718 resistance as nearest upside target.

Brazil’s coronavirus deaths hit another record of 3,869 with the situation highlighting the risks of allowing Covid to run rampant as risks of vaccine resistant variants increase. President Bolsonaro still refuses to implement a lockdown.

Meanwhile, Canada’s GDP came in slightly stronger yesterday at 0.7% MoM vs 0.5% exp. This leaves growth running above the BoC’s expectations and increases the possibility that the BoC tapers its bond purchases on 21st April. Deputy Governor Toni Gravelle hinted at such a move in a speech last week.

OPEC+ meets today. They are expected to maintain current output limits after they lowered their 2021 demand estimates. China continues to import oil from Iran despite US sanctions which is further adding to supply.

The French and Japanese measures are being expressed in markets by growing yield divergence as UK and US yields price in growth and tighter monetary policy whilst European and Japan yields remain capped by their central banks. These moves look set to continue and should therefore continue the trend of USD strength. The market has flipped to short JPY over last couple of weeks and strong Japan fiscal year end demand for USDJPY yesterday has driven a decent move.

In today’s forex market overview, EURUSD positioning is still long despite the growing divergence between the US and EU economies. EURUSD rallied back up to 1.1760 yesterday so that is short term resistance, expect rallies to be sold and for EURUSD to eventually break lower to the November 2020 lows around 1.16 as positioning flips to fit the narrative.

Australia and New Zealand have largely sheltered themselves from the pandemic but as the US opens up, they are likely to be sheltered from the rebound in travel too as their vaccine distribution has been very slow so far. Expecting this to allow the US to outperform NZ and AU which will lead to a deeper pull back in AUDUSD and NZDUSD. The market is long AUDUSD as the currency pair has tried to rally back onto the 0.76-handle several times although failed to build momentum higher.

The economic calendar has manufacturing PMI readings from Germany, the Eurozone, the UK, and US at 0855 BST, 0900 BST, 0930 BST and 1445 BST, respectively. In the afternoon, the latest US jobless claims figures are due at 1330 BST and due on Friday is the US nonfarm payrolls report for March.

Market Updates

EURUSD The month has now come to an end, and the Euro is still struggling to rise against the US Dollar. The EUR/USD is lower by nearly 3% from 1.21 on March 1st to 1.17 today, amidst expectations that the Eurozone will lag others in the economic recovery. Although the currency pair did hit our long target at 1.1760 yesterday, after Eurostat reported a jump in Eurozone inflation to 1.3% up from 0.9%. However, with Covid-19 cases rising at an alarming rate in Germany, at over 25,000 new infections in the last 24 hours, we don’t expect this bullish move to continue. A break below the 1.1705 support level, will trigger an acceleration lower, with the November 2020 lows around 1.1635 as our downside target.

GBPUSDThe Pound attempted to rally yesterday, hitting our long target at 1.38 before reversing lower following President Biden’s unveiling of his USD2.25 trillion infrastructure spending spree. Moreover, we consider vaccinations to be an important input to the Cable’s performance, and since the UK is seeing its vaccine supplies come under pressure at present, we expect the Pound to also come under pressure, with a breach of the 1.3760 support level to extend the drop to our nearest downside target at 1.3710. The calendar has manufacturing PMI readings from the UK at 0930 BST and the US at 1445 BST, in addition to the latest US jobless claims figures at 1330 BST.

USDJPYUSDYEN dropped to our support target at ¥110.60 yesterday, but the bulls came back charging this morning, bolstered by an advance in US Treasury yields and the US Dollar, and therefore from a technical perspective, after failing to fall below the lower trendline and the 50-period moving average, a retest of ¥111 is highly likely, ahead of the latest US jobless claims data due at 1330 BST.

FTSE 100The FTSE100 dropped to our target at 6720 yesterday, despite markets in the US registering gains overnight following Biden’s unveiling of a USD2 trillion infrastructure investment. FTSE futures, however, are seen opening strong this morning, tracking Asian markets higher with a break above the 50-period moving average around 6740/6750 to extend to the 6780 resistance. Alternatively, a drop below the 200-period moving average today will trigger further declines to 6700 and 6660 in extension. The economic calendar has manufacturing PMI readings from the UK at 0930 BST. In the afternoon, the latest US jobless claims figures are due at 1330 BST.

DOW JONESStocks in the US rallied yesterday after President Biden unveiled a USD2 trillion infrastructure plan to shore up the nation’s economy, with tech stocks leading the move higher as the Nasdaq surged 1.5% to close back above 13000. However, the Dow Jones index is lagging slightly and remains below the 50-period moving average, with a breach of the 33000 support to trigger further downside to 32820 as target, ahead of the latest jobless claims figures due at 1330 BST.

DAX 30Germany’s DAX continues to print fresh record highs, ending yesterday’s session above the 15000 at 15041, supported by automakers, Biden’s unveiling of a USD2.25 trillion infrastructure package, and assurances from ECB President Lagarde that policy makers are ready to use full range of tools. Weaker than expected German Retail Sales released this morning did little to dent sentiment as investors look ahead towards German and Eurozone Markit Manufacturing PMI data, with a weaker reading to favor a pullback lower back towards 15000.

GOLDGold bounced off $1677, ending yesterday’s session back above the $1700 handle, on the back of President Biden’s $2.25 Trillion infrastructure plan that sparked fresh inflation concerns and boosted demand on the yellow metal. Technically, the 200 period SMA is the major resistance level that should be breached to open the door to further gains, while a failure to print above $1718 will have prices retreat with $1700 as key support level on the downside. in extension.

USOILWTI Crude back in the red below the $60 handle, after France declared a four-week nationwide lockdown, while Italy joined Germany in extending partial lockdowns. A surprise drawdown in EIA inventory failed to spur bullish momentum as investors await OPEC+ decision today on supply. Ongoing lockdowns and remarks out of a top OPEC+ official on the fragility of demand is supporting views that OPEC+ will keep production cuts steady. Failure to breach $60 resistance will favor a pullback towards $58.50

 

 

 

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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