Date Thursday 26th March 2021
Direction

The theme of US and UK economies outperforming because of strong vaccine roll outs and Australia and New Zealand outperforming because of strong control of the virus still holds. Meanwhile the return to global growth supports cyclical currencies broadly adding to the out-performance of the commonwealth in G10.

Drivers

The 7-yr Treasury auction yesterday was weak leading to some brief risk aversion as traders looked back to the Feb sale.  However the moves in US yields are much less volatile now that positioning is lighter so not expecting any issues to spill over into FX.

US virus cases have been picking up after falling for the last few months. Something worth keeping an eye on although with 1 in 4 people have already been vaccinated in the US and vaccines are becoming available to all adults, which should help manage the increase in cases.

US Initial Jobless claims came in below expectations showing how the US labour market continues to strengthen.  US GDP also came in strong at 4.3% annualized QoQ vs 4.1% exp.  UK Retail Sales for February in line, +2.1% MOM and -3.7% YOY.  This follows the strong employment and PMI’s out of the UK but weak CPI earlier in the week.

We have seen a wave of position cutting in FX across this week which seemed to be sparked by a mix of TRY volatility, German lockdown and New Zealand macro prudential measures.  The move in equities has been a lot more subdued and this shows that this was more a result of excessive positioning in FX and rates where the market had piled into long crossJPY and yield steepening trades at bad levels last week.  Despite the averse moves in markets the data this week has been very strong and firms up the view that return to global growth is still on a very firm footing.

Meanwhile yields in Japan remain capped by the BoJ and to large extent in the EU too given increased PEPP purchases. This divergence is driving the trend higher in crossJPY and lower in EURcrosses.  USDJPY attracted sellers this week as US yields came off but could only trade down to 108.41 before bouncing,  the lack of momentum lower will have disappointed sellers as we now approach the months high at 109.36. We are expecting USDJPY to stay supported as the market edges back into long crossJPY.

The recent position cleanse now provides good opportunities to get on this trend at better levels, long AUDJPY and short EURGBP look attractive trades. USD has been bid this week as a haven on the back of risk off moves, therefore the USD should ease as risk sentiment recovers.

Market Updates

EURUSD Despite vaccine rollout concerns and the possible economic fallout from the third wave of COVID infections in Europe, global equities’ impressive recovery triggered some profit-taking on the US dollar, pushing the Euro higher near 1.18. If equities keep going higher in today’s session, this may trigger an acceleration to the upside with 1.1840 as nearest target.

GBPUSD The Pound managed to rebound from our support level at 1.3680 yesterday after US Treasury yields pulled back below the key 1.60% mark. Today, the Cable is extending the rally attempting to settle above the 1.3750 resistance level, as UK retail sales increased 2.1% MoM, in line with analysts’ expectations. In case this attempt is successful, GBP/USD will head towards the next upside target which is located at the 50-period moving average around 1.3820, ahead of US personal income and consumption expenditures data due at 1230 GMT.

USDJPYThe Dollar/Yen is trading higher today, just under the multi-month high at ¥109.30 as the US dollar is being pushed higher by a wave of optimism over improving jobless claims, the rollout of coronavirus vaccines, and rising Treasury yields. An hourly close above ¥109.30 will trigger an acceleration to the upside, otherwise failure to breach that level will result in the rally fading with the ¥108.90 coinciding with the 200-period SMA as nearest support.

FTSE 100UK PM Boris Johnson suffered a serious setback as 35 MPs from his own Conservative Party opposed the extension of coronavirus laws for six months. However, investors seem to like the news as Britain’s FTSE futures which initially dropped below our key support level at 6650 in early trade yesterday, made an impressive comeback above the 6700 resistance. Jobless claims in the US dropping to a one-year low and President Biden’s pledge to boost vaccination efforts, also helped boost global shares higher and therefore we can expect to see a positive start today as well. But from a technical perspective the UK index is about to test the 200-period SMA in addition to our resistance at 6740, which may trigger some profit booking with 6700 now turned support.

DOW JONES – After initially hitting our key support level at 32100 in early trade yesterday, the Dow Jones Industrial roared back strongly as jobless claims dropped to a one-year low. Buying accelerated all the way to the 200-period moving average above 32700 after President Joe Biden raised his goal for Covid-19 vaccinations to 200 million doses in his first 100 days in office. The index seems to be stalling today, however, as Dow component Nike (NKE) faces backlash from China following comments by the sportswear giant about reports of forced labor in Xinjiang. Failure to break above the 200-period moving average will trigger some selling with 32600 as nearest downside target, ahead of data on personal consumption due later today.

DAX 30 German stocks are seen opening higher today tracking gains in US equity markets, as investors cheered President Joe Biden’s pledge to boost vaccination efforts. The DAX30 initially hit our support level at 14450 yesterday, however index futures surged higher in late trading, erasing the day’s losses, as the appetite for stocks returned despite the uncertainty around rising infection rates and the slow rollout of vaccines. Failure to move above the all-time highs around 14800 today will trigger some profit booking with 14590 as nearest downside target.

GOLDTreasury yields climbed after a weak auction of 7-year notes, weighing down on the non-interest-bearing bullion, failing to breach $1740 resistance level as we print back below the 20, 50, and 200 period SMA’s, with the $1730 support level now turned resistance. Michigan consumer sentiment along with PCE data awaited out of the US today, with technical indicators favouring further downside with $1718 as closest support target.

USOIL – Prospects of wider disruption to trade with the “Ever Given” ship now expected to keep blocking the Suez Canal until at least Wednesday kept higher prints on WTI Crude supported, while better than expected economic data out of the US and an accelerated vaccination plan was reflected in a stronger greenback, in turn weighing on the black gold. An hourly close above $60 resistance level is needed in today’s session to favour further upside with $61.55 and the 200 period SMA as the closest 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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