Date Thursday 25th March 2021
Direction

The current risk backdrop is strong, and the PMI’s this week have further reenforced this positioning.  Vaccines are still being rolled out so we can hopefully look past this current increase in virus cases.

Drivers

5-yr US Treasury auction went well yesterday.  This should ease concerns that there could be forced Treasury selling now that the Fed is allowing the SLR exemptions to roll off.  There will be a 7-yr auction later today, but this is unlikely to end in a repeat of the price action we saw end of Feb.

Germany is abandoning its plan for a strict 5-day lockdown over Easter and will instead look to limit holiday travel.

Oil rallied back from Tuesday’s losses as a result of a large container ship   blocking the Suez Canal and therefore blocking oil deliveries.

PMI numbers this week have shown the strength of the global recovery.  German manufacturing yesterday was a huge 66.6 with numbers surprising to the topside across the board. UK PMI numbers also strong with services 56.8 and Manufacturing 57.9. This comes after strong UK employment numbers earlier this week.

US Durable Goods numbers were weak at -1.1% but PMI numbers were in line at 59.0 for manufacturing and 60 for Services.

The size of the move lower in crossJPY has taken many by surprise this week but it feels the move is done now.  CrossJPY had been bought at bad levels and this exacerbated the stop loss driven move lower that we have seen this week.  A mix of TRY volatility, New Zealand macro-prudential measures and lockdown in Germany were enough to push the market into position cutting mode ahead of quarter end but it feels that position reduction is over.

The theme of increasing yields for cyclical currencies as growth expectations are revised higher, still holds.  Meanwhile yields for JPY, EUR and CHF remain capped. It feels the trend higher in crossJPY can now continue after the position cleanse this week.  Long AUDJPY against yesterday’s low at 82.29 and support at 82.00.

Market Updates

EURUSD Renewed coronavirus jitters are pushing the US Dollar higher, capping the upside on the euro. After hitting 1.18 our first target yesterday, we think there is more pain to come for the single currency if the bears break below the 1.18 support. Meanwhile, comments by the ECB President Christine Lagarde and the release of the final Q4 GDP print, will play a key role in driving the greenback today.

GBPUSD The Pound breaks below 1.37 as expected, as the DXY keeps rallying to new yearly highs, despite falling yields. BoE Chief Economic Andy Haldane followed the footprints of Governor Bailey’s latest comments expecting a quick recovery of the UK’s economy. However, failure to break the deadlock over fishing rights, the bulls might refrain to place aggressive bets. Our bias remains bearish in the short-term, as we expect further losses towards 1.3615 in today’s session.

USDJPYKing dollar is back helped by an uptick in U.S. treasuries as the USD/JPY surged above the 50-period moving average at ¥108.65 yesterday and is now testing the 200-period moving average around ¥109. The direction of the USD/JPY today is likely to be determined by trader reaction to the ¥109 pivot, the RSI however, although pointing higher, is about to signal extreme overbought conditions with the ¥109.20 to act as resistance level on the upside.

FTSE 100The FTSE100 closed slightly higher yesterday, failing to move above our key resistance at 6700, as tensions between the EU and UK remain high, after the EU tightened vaccine export controls. Today, members of the UK Parliament will be asked to approve the regulations for lockdown easing while keeping some of the emergency powers in the Coronavirus Act in place until September. Technically speaking, failure to breach the 6700-resistance level will result in more weakness, with 6670 and 6650 as nearest downside targets.

DOW JONES –  The Dow had a wild ride yesterday, initially surging 450 points to our resistance level at 32800, coinciding with the 200-period moving average, before tumbling back down amid concerns about the global economic recovery, with technology stocks leading the drag lower despite yields stabilizing. Today, US GDP is due at 1230 GMT with initial jobless claims due at the same time, and therefore some volatility is expected with 32400 as nearest downside target.

DAX 30 It was a relatively quiet trading session yesterday, with the German DAX falling slightly despite impressive manufacturing PMI figures and better-than-expected service PMI figures, overshadowed by concerns over the economic outlook, as Germany reintroduced new lockdown measures. German consumer confidence earlier this morning came out better-than-expected due to falling infection rates at the time of the survey. However, the new lockdown measures will likely damage consumer confidence going forward, which means difficult times ahead for retailers and manufacturers. And therefore, we expect the German index to remain weak, at least in the short-term, with 14468 as nearest downside support level.

GOLDNo inflation concerns from Fed Powell along with decent demand on the 5-year treasury auction and slightly stronger PMI readings out of the United States, kept the yellow metal in a range ahead of today’s Initial Jobless Claims and PCE data. Prints below $1730 will favour further downside with $1718 as closest support target, while a breach above $1740 is needed to boost bullish momentum.

USOIL – Suez Canal remains blocked with 10 crude tankers carrying around 13 million barrels among the vessels stuck in the jam, as concerns over further disruption continue to provide support for higher prints on WTI Crude, while latest EIA data showed that demand recovery has yet to pick up. $60 resistance level needs to be confirmed as support and $61.55 is the closest resistance target on the upside.

 

 

 

 

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.

 

Disclaimer: This information is only for educational purposes and is not an investment recommendation. The information here has been created by SquaredFinancial. All examples and analysis used herein are of the personal opinions of SquaredFinancial. All examples and analysis are intended for these purposes and should not be considered as specific investment advice. The risk of loss in trading securities, options, futures, and forex can be substantial. Customers must consider all relevant risk factors including their own personal financial situation before trading.