Date Wednesday 24th March 2021
Direction

The global economic outlook remains closely tied to the recovery story.  The problem is that for each positive we seem to be getting a negative.  Vaccines are leading some countries to open up but in others where vaccine programmes are not working, we are seeing new lockdowns.

Drivers

Yesterday investors were concerned by Treasury Secretary Janet Yellen telling Congress that the US economy remained at risk.  Oil prices took the biggest hit with West Texas Intermediate (WTI) crude futures falling 6.5% to near $58.  The Energy Information Administration (EIA) will publish its inventory numbers later   today, if stockpiles are higher, we expect further declines in crude oil prices.

The economic calendar has important reports today.  In the UK, the Office of National Statistics published the latest CPI, RPI and PPI data. We were expecting an increase in core CPI from 1.4% to 1.5%, however, a much softer reading at 0.9% surprised us. This means no runaway inflation. It will   be interesting to see how GBP reacts to the data. A move higher should be happening, however so far, the bulls seem absent.

Other important numbers will be the flash global manufacturing and services PMIs and the US durable goods orders.

Bonds and the US dollar surged higher after reports that President Biden plans more measures to spur growth namely a new $3 trillion dollar infrastructure bill.  However, stocks fell as investors worry that the new spending spree will be accompanied by tax increases on corporations and the wealthiest Americans.

Investors are turning back to traditional safe havens like the Japanese Yen and US Treasury bills. Gold is dragging however and will need a sustained move above $1740 an ounce to attract buying interest.

Kiwi dollar continues to decline sharply now at 0.6977 the lowest level since November 2020. The NZD/USD currency pair has now moved below the pivotal key support level at 0.7010 and seems like its heading to the 200-day moving average around 0.6850 despite great numbers out of New Zealand earlier this morning as the total trade surplus (exports – imports) increased to $181 million in February from a deficit of $647 million in January.

The EUR/USD pair is now at 1.1820 attempting to breach its 200-day moving average. It has also moved below the neckline of the double-top pattern at 1.1880. Therefore, failure to bounce back from 1.18 this week will also mean the major trendline has pivoted from up to down.

Market Updates

EURUSD  The euro dropping to new yearly low amid broad US Dollar strength, after Fed Chair Jerome Powell downplayed the risks that economic growth would trigger unwanted inflation in yesterday’s testimony. Meanwhile, the shared currency was weighed down by growing market concerns about the slow vaccine rollouts in Europe. Consequently, the sentiment will remain bearish today, as we look to short any rally towards 1.1840 -1.1870, targeting below 1.18.

GBPUSD The bears took back control yesterday in the near-term, after the pound tumbled around 150 pips once the sellers took out the critical 1.38 support level. Weaker than expected UK CPI, adding on concerns that the UK’s vaccination campaign could slow down, weighed down the cable. Our bias turns bearish in the short-term, as we expect further losses towards 1.3615 in today’s session.

USDJPYSafe havens were mixed yesterday with the Japanese Yen inching higher despite gold prices succumbing to a stronger dollar. The USDJPY pair is now bouncing back from our key support level at ¥108.40, however, on the short-term timeframe, the trend is still down despite a widening interest rate differential between the two countries. A sustained move above the 50-period moving average will pivot the trend back to the upside.

FTSE 100The FTSE100 dropped to near 6650 yesterday, despite a better-than-forecast UK unemployment reading, with oil stocks leading the decline after crude oil prices tumbled on concerns over Europe Covid-19 surge. UK inflation earlier this morning came in much worse than expected with the core CPI at 0.9% versus a forecast of 1.4%, which means no runaway inflation in the UK for now. However, London stocks have so far not reacting positively. Technically speaking, if the FTSE100 moves below the 6650 key support level, this may trigger an acceleration to the downside with 6620 as nearest target.

DOW JONES – The Dow Jones Industrial tumbled yesterday hitting both our supports targets at 32610 and 32400 despite a drop in the yield on 10-year Treasuries for the third day in a row to 1.60%. Bonds and the US dollar surged higher after reports that President Biden plans more measures to spur growth namely a new $3 trillion dollar infrastructure bill. However, stocks fell as investors worry that the new spending will be accompanied by tax increases on corporations and the wealthiest Americans. Today, traders’ reaction will depend on the 32400-support level. If it holds, we may witness dip buying interest back to 32610 resistance level ahead of US PMI data due to be released at 1345 GMT.

DAX 30 The DAX30 dropped to near 14500 in early morning trade yesterday before bouncing back to 14700 despite a European third wave of Covid-19 infections that is likely to delay any sort of return to normal anytime soon. Adding to the uncertainty is EU threats to limit exports of vaccination supplies to other countries including the UK. From a technical perspective, the German benchmark has so far held strong above the 200-period moving average, however, a sustained move below this key indicator may drag the index lower to 14468 as nearest target ahead of PMIs from Germany and the eurozone at 0830 GMT and 0900 GMT, respectively.

GOLD – Powell-Yellen duo downplaying inflation again yesterday along with a solid auction of two-year treasuries, appeased investor concerns over a run in yields, denting demand on the yellow metal as we trade below $1730 (support now turned into resistance) with $1718 as the next closest support target on the downside. All eyes remain on Powell-Yellen second day appearance along with the upcoming 5- and 7-year debt auction.

USOIL – WTI Crude dropped by more than 6% in yesterday’s session, hitting our short support targets, now turned into resistance, as pandemic concerns and delayed vaccine rollouts weighed down on market sentiment. A buildup in API crude inventories coming in at 2.927Mb vs. a previous drawdown of 1Mb added to bearish momentum, while a Suez Canal blockage supported higher prints today, ahead of EIA data. Failure to breach $59 resistance level will keep bearish momentum strong with $57.50 as 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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