|Date||Friday April 23, 2021|
||ECB passed without surprises. PEPP purchases to continue to run at a significantly higher pace than during the first months of the year.
Biden’s capital gains tax proposals were leaked. The proposals would increase the marginal rate to 39.6% from 20% for those earning more than $1m.
Australia China tensions increasing after Scott Morrison cancelled a Belt and Road Initiative deal. China has already threatened retaliation. Australia’s exports have held strong this year despite tensions, but this is purely driven by iron ore. Other exports to China have fallen 29%. If China enacts more tariffs as punishments or targets iron ore imports, then this could have a large impact on the Australian economy.
US Initial Jobless claims continued to fall showing the US labor market continues to recover faster than expectations.
The plans to increase US capital gains tax are a small negative that will have been somewhat expected, potentially adding another piece to a deteriorating outlook for risk sentiment. Markets have been focused on vaccines, fiscal stimulus, and reopening economies so far this year and have reached a stage where equities are priced for a perfect reopening. Now we may be transitioning to phase where markets are focused on resurging virus cases, higher taxes and a slower return to normality than hoped, this could lead to a pullback in risk sentiment from elevated levels.
Still feel the USD’s safe haven status will be boosted by a strong vaccine roll out there, therefore preference to be long USD against growth currencies. Short CAD despite the more hawkish BoC as the virus situation is deteriorating there and oil is selling off on global growth concerns, short AUD, NZD and ZAR due to slow vaccine roll outs. Short AUDUSD particularly interesting as we now have the added downside risk of retaliation from China over Australia’s cancelling of a Belt and Road Initiative deal.
Extremely strong UK Retail Sales +5.4% Y/Y vs +1.5% expected +7.2% Y/Y vs +3.5% expected
Eurozone PMI, UK PMI and US PMI out later.
EURUSD – As expected, ECB interest rates will remain at low levels until inflation is close to 2% and the Central Bank will ramp up purchases under the PEPP. During the press conference, Lagarde did talk about a possible contraction soon, but that wasn’t enough to flush down the EURUSD. The pair is still bullish, technically speaking, trading above both the 50 and 200 SMA’s on the H4, ahead of prelim private sector PMI figures from France, Germany, and the Eurozone due today.
GBPUSD – GBPUSD pulled all the way back to the 50-period SMA and 1.3840 support level struggling to tick back up this morning despite UK’s Retail Sales for March surging to +5.4%. A drop below 1.38 will flip back the British Pound to bearish, while a sustained move above 1.3915 will get the buyers back into the market.
USDJPY – Although USDJPY is slightly below ¥108, the level remains a major area of interest, and is acting as strong support. A Dollar rally may push this currency pair back up. Technical indicators, however, still favor a bearish move lower with ¥107.20 as nearest target.
FTSE 100 – The FTSE100 index failed to move above the 200-period SMA, favoring a bearish move lower, despite a strong UK Retail Sales number earlier this morning. The weakness comes following declines in US equity markets overnight after reports the Biden administration is planning additional tax hikes.
DOW JONES – Dow Jones Industrial Average dropped nearly 1% hitting our support level at 33750 after reports the Biden administration is planning additional tax hikes, with Bloomberg News reporting the plan is to raise capital gains tax for wealthy individuals to 39.6%. Choppiness is expected ahead of a busy day on the economical front, with Manufacturing and Services PMIs, in addition to US New Home Sales, all due to be released later this afternoon.
DAX 30 – German DAX failed to surge above 15360 resistance, finishing lower in late trading yesterday. However, the index is still supported by the 200-period SMA ahead of of prelim private sector PMI figures from Germany and the Eurozone due today..
GOLD – Gold hit our support targets at $1784 and $1780 after Initial Jobless Claims registered another drop (Actual: 651K, Previous: 683K). On the other hand, shipments from Switzerland to India and China rose last month, indicating renewed consumer demand while Biden’s higher taxes plan weighed on risk sentiment. $1782 support level to direct today’s session, as an hourly close below it will trigger further downside with $1770 as closest support target.
USOIL – An attack on Saudi Aramco by Yemen Houthi rebels, though have caused barely any damage, lifted WTI Crude prices higher, ending yesterday’s session in the green. Technically, the black gold is printing below the 200 period SMA on the 4H and 1H chart, with $61.55 support level to direct today’s session, as an hourly close below it will open the door to $61 support level as closest target.
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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