Date Thursday April 22, 2021
Drivers
After two days of decline, global equity markets turned around despite the divergence between various countries when it comes to infection rates and vaccination levels, with investor attention turning to ECB’s rate decision due later in the afternoon, in addition to the latest US jobless claims report.

CAD was particularly volatile after reports suggested that there will be no change in QE, before the BoC said that it would bring forward its rate hike forecasts to next year and pare back pandemic asset purchases. The Loonie was therefore sold before rallying back hard when the actual release detailed the cut to QE from 4bn CAD to 3bn CAD as expected. The hawkish part of the event came from this statement “the Bank now expects slack will be absorbed and inflation will sustainably return to target sometime in the second half of 2022.” This brought forward the first projected rate hike from 2023 to second half of 2022.

ECB today, a full assessment of the pace of asset purchases will not happen until June so today’s meeting is likely to be uneventful, however, the market will focus on the tone that Christine Lagarde adopts in the press conference. We expect her to focus on the continued downside risks of the virus.

Germany’s constitutional court removed its obstruction of the EU post-pandemic recovery fund. This should allow the fund to be finalized by the end of June and funds to start flowing in July. EURUSD bullish on the long-term scale.

We still feel that it is important to keep checking back with the Covid data. Since vaccines were announced, markets have been looking through most short-term virus data and focusing on the eventual end to the pandemic. Markets are pricing in a swift return to normality and a sharp V-shaped recovery from the pandemic. That is not so obvious to us as many parts of the world are currently experiencing their worst phase of the pandemic.

Due to swift vaccine roll outs the UK and US appear to be somewhat sheltered from this next wave. The USD’s safe-haven status is strengthened as the US is now relatively sheltered from the virus; a dynamic that will become important if we eventually see some risk aversion on the back of virus concerns. USD has been sold aggressively on lower US yields it is important to note that US yields can continue lower, and USD go bid if we do see a virus-related risk off move.

The current situation looks worse across most of the world than it does in the US, therefore short growth currencies against USD still seems to be the short-term trade.
Short CAD despite the more hawkish BoC as the virus situation is deteriorating there and oil is selling off on global growth concerns, as well as short AUD, NZD, and ZAR due to slow vaccine rollouts.

Market Updates

EURUSD Euro eyes ECB today. The market will be focused on the tone that Lagarde adopts in the press conference. We expect her to focus on the continued downside risks of the virus, as buyers and sellers continue to square off between support at 1.1985 and resistance at 1.2065. Technical indicators suggest short-term bearish activity, however, the main trend still up as long as EURUSD trades above 50-period SMA.

GBPUSDGBPUSD still trying to rebound from 1.3915 supported by the 50-period SMA on the 4-hour chart with bullish moves likely to aim for a retest of 1.40 with RSI oscillator pointing lower suggesting downside momentum in the short-term, however on the daily scale, healthy upside momentum confirming our bullish view so far..

USDJPYUSDJPY still hovers above critical ¥108 for the second day in a row despite an escalating coronavirus outbreak just 3 months before the Olympic Games in Japan. A break below ¥108 will trigger an acceleration to the downside with ¥107.20 as nearest target.

FTSE 100The FTSE100 turned around after 2 days of decline despite rising infection rates in various countries with investor attention turning to the European Central Bank’s interest rate decision in the afternoon. Technically, the UK blue-chip index is still capped by the 200-period MA with bearish moves back to the 6855 level still highly likely.

DOW JONESUS markets turned around, reversing most of Tuesday’s losses, with the Dow Jones Industrials surging back to key 34150 resistance level but failing to break above it, suggesting downside momentum may not be over yet, ahead of the latest US jobless claims due later today..

DAX 30The German DAX hit our 200 period SMA target in yesterday’s session, ending the day in the green ahead of today’s ECB meeting where investors expect no change in policy. 15324 resistance level to direct today’s session, after European equities tracked US equities higher, as a failure to breach 15324 will confirm a lower high with 15200 as the closest support target.

GOLDGold ended yesterday’s session in the green, hitting our resistance target at $1780 as US10Y dropped below the 50 period SMA for the first time since November, while topping below the $1800 mark in early trade today in a sign of fading bullish momentum. Rising Covid-19 cases along with concerns over new lockdowns could keep the yellow metal bid, while a close below $1790 support level will favor further downside with $1784 and $1780 as next targets in extension.

USOILSecond consecutive close in the red for WTI Crude, weighed down by resurging Covid-19 cases in India and Japan, with the former recording the world’s highest one-day cases topping 300,000. US EIA inventories added to bearish momentum, registering a buildup of 0.594Mb vs. expectations of a drawdown of -2.975Mb. $60.74 support level to direct today’s session, with an hourly close below it to open the door to further downside with $60 as next closest 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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