Date Thursday 21st January 2021
Direction

Given the worsening virus situation across the globe and slow vaccine roll out due to supply constraints we are still wary of risk sentiment.  If the new virus strains reduce effectiveness of the vaccines, then it is again going to delay the already slow path to heard immunity, further setting back the recovery.

Drivers

We feel the markets are in a holding pattern between the positives of Biden coming in and the rollout of the vaccine, and the negatives of new virus strains and increasing deaths.

Pfizer’s vaccine production has slowed due to changes to their manufacturing processes. This means that supplies have been delayed to Canada and the EU. Canada’s deliveries will be pushed back to Feb which will have a significant impact on their planned vaccine roll out. US is also struggling to keep up with demand with NY delaying vaccinations.

The UK recorded its deadliest day with 1,820 deaths. Spain posted record new cases.

BoC was unchanged and maintained its promise to keep rates at 0.25% into 2023. The market took the meeting as hawkish due to upgraded growth and inflation outlooks, they described the domestic outlook as “stronger and more secure”. QE was unchanged but they said that as the BoC “gains confidence in the strength of the recovery” bond purchases “will be adjusted as required”. The market took this as a hint of tapering to come.  CAD jumped after the BoC as the focus of the market turns to which central banks could be tapering first. CADJPY holding below 82.18 for now, still like to be short as expect extended lockdowns to weigh on oil and risk sentiment.

Australia employment came in line. +50k employment. Unemployment ticked lower to 6.6%.

ECB rate decision is the key focus today with Lagarde press conference shortly after. No changes are expected although Lagarde may mention EUR strength but this is unlikely to impact spot given EUR has pulled back this month.

Numbers to Watch
  • Very choppy price action in FX without clear drivers. EURUSD sucked longs back in as it pushed up to 1.2158 in early London trading yesterday before turning sharply lower and washing those longs out on a move down to 1.2077. Seems to be causing pain in both directions at the moment.
  • EURJPY topped out ahead of the Tuesday high of 126.21 twice   yesterday.  Lean towards being short against that level given the poor virus situation and slow vaccine roll out in Europe right now.
  • EURGBP broke the 0.8863 level yesterday to trade down to 0.8838. Again, no clear driver, failure to close lower suggests we could see a reversal so market may have opportunities to sell towards 0.8950 and 0.9000.

Market Updates

EURUSD – Risk-on sentiment in equities kept the Euro supported above 1.21 ahead of ECB, despite the Eurozone economy facing the risk of recession due to the worsening coronavirus situation and political tensions in Italy and other nations. Today, the ECB is widely expected to keep the interest rate and the asset purchase program unchanged, however the stronger euro and its deflationary impact triggered some concerns from policymakers back in December. From a technical perspective, the single currency is attempting to base above 1.21, but price needs to break above the 50 and the 200-SMAs for further upside momentum.

GBPUSD  The Cable rising for the fourth consecutive day to break above 1.37 amid UK’s rapid vaccinations and the upbeat market mood. The USD pulled back overnight following the drop in the US 10-year yields. If the yields continue to drop today, then the Pound can easily take out the 1.37 resistance, opening doors for further bullish momentum.

USDJPY – The Dollar/Yen failed to break above 104 for the third time and reversed, breaking below the 103.60 support as yesterday’s market optimism was backed by the new US administration. US Equities printed new record highs and bond yields started to drop, as investors welcome the new US President. Today, if the Dollar Index continues to weaken, the pair could head lower below the 103.30 support.

FTSE 100 The FTSE 100 hit our short support target at 6700 before rising back up following the inauguration of Joe Biden as the 46th President of the United States without any reported incidents. Technically speaking however, the UK index is still not out of the woods yet, with a yet to breach key resistance at 6780 / 6800 coinciding with the 200-period moving average while the UK recorded its deadliest day at 1820 deaths.

DOW JONESUS stocks are set to rise higher today on optimism over the new administration in the White House. Hopes are high that President Biden will bring more support to the struggling US economy, keeping stock markets supported. The Dow Jones industrial average surged to record highs, powered by gains in technology, communications, health care and most other sectors. Despite concerns that some stocks are starting to look overvalued, the historically low interest rates along with new stimulus and the continued rollout of vaccines, will help bolster markets and the recovery. From a technical perspective, failure of the Dow index to breakout by closing above 31300 will trigger a slight correction ahead of initial jobless claims due later today.

DAX 30The German DAX is set to rise again this morning aiming to break the 14000 level ahead of the European Central Bank’s latest policy decision at 1245 GMT. Attention will focus on the post-meeting news conference by President Christine Lagarde and her comments on the economic outlook as infections and deaths surge. With more than a trillion euros of pandemic stimulus still not yet spent, Lagarde is expected to underline that the bank has the means to keep extending support measures should the downturn last longer. Technically speaking, a break of the 14000 will trigger accelerated buying and a retest of the record intraday high at 14136.

GOLD – Gold hit both our resistance targets at 1860 and 1870, registering a third consecutive close in the green, now back above the 200 period SMA on the daily chart, also supported on the 4H chart by the 200 period SMA coinciding with 1870 level. On the short term, an hourly close below 1870 will favour a pullback with 1860 as the closest support target as momentum indicators turn bearish.

USOIL –  WTI Crude hit our short support target at $53 after API inventory showed a surprise buildup of 2.562 Mb vs. a previous drawdown of -5.821 Mb as ongoing lockdown restrictions continued to weigh on global demand. Technicals favour further downside in today’s session as long as 53.50 resistance level is respected, with an hourly close below $53 support level to have 200 period SMA and $52.60 as closest targets.

 

 

 

 

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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