Date Wednesday 7th of April 2021
Drivers
US Treasury yields are pulling back despite strong NFP and ISM numbers out of the US and this is evident of a reflation trade that has gotten ahead of itself. As yields come off the reflation trades are pulling back. This is not just about USD as the market is more long of GBP and CAD mostly but also long AUD and NZD against USD. The pull back in US yields is also being reflected in yields of these growth currencies as it was on the way up.

 

Therefore, fading this rally in AUDUSD and NZDUSD and staying long USDCAD above 1.2500 support all sensible trades. JPY selling has been strong over the last few weeks. Positioning flipped from long JPY in mid-March to very short into April. Much of the JPY selling will have happened on a 110-handle in USDJPY so positioning is vulnerable to further liquidation on this pull back. Short CADJPY as a pull back towards 86.00 seems highly likely given lockdowns in Canada and lower crude oil prices.

 

Services PMI’s for Europe today will give some insight into the impact of renewed lockdown measures.

Market Updates

EURUSD Significant gains in the Euro on the back of a weakening US dollar, despite retreating US yields, may have come to end at the 1.1875 resistance coinciding with the 200-day moving average. The RSI oscillator is also indicating overbought conditions pushing traders to offload their long positions, therefore a retest of the 1.1820 level is possible at this point. Otherwise, a breach of the 1.1875 resistance may trigger short covering, with 1.1920 as next upside target for the EURUSD.

GBPUSDCable ended yesterday’s session on a bearish engulfing daily candle, printing below the 200-period SMA on the 4H chart, while attempting to breach the 200-period SMA on the hourly chart with gossip out of London of targeting sell stops at 1.3802 in early trade today. A sustained move over 1.3820 to trigger more short covering.

USDJPYSecond consecutive close in the red for USD/JPY, ending yesterday’s session back below the ¥110 handle, as resurging Covid-19 infections in Japan dented the yen’s appeal. An upward revised IMF global growth forecast to 6% is providing support to the greenback, and from a technical perspective the forex pair still holds firmly above the ¥109.65 and ¥109.80 support zone, with a sustained move above ¥110 to open the doors to a retest of the 200-period moving average around ¥110.20.

FTSE 100A fall in Covid-19 cases in England is boosting sentiment as the number of patients in hospitals dropped to its lowest level in over 6 months. The FTSE100 is seen opening stronger this morning after yesterday’s breakout above the key 6810 resistance level, now turned support, with a sustained move above 6840 to trigger an acceleration to the upside, ahead of service PMI data due in the UK at 0830 UCT.

DOW JONESBiden’s USD2.5 trillion infrastructure proposal called the “American Jobs Plan” would increase the corporate income tax rate to 28% from 21%. But so far, Wall Street seems to be ignoring that and buying the dips is what traders keep doing. The Dow Jones did take a breather yesterday after strong gains over the past few sessions, but the slightly down session didn’t alter the bullish trend as the index remains firmly above the 50 and 200-period SMA’s for now.

DAX 30Stocks in Germany successfully closed the session on Tuesday after the IMF upgraded its 2021 global economic growth forecast this year and next year, although the DAX30 index failed to move above the 15360 all time high. Today, the economic calendar has service PMI data in Germany at 0755 UCT and eurozone at 0800 UCT. Elsewhere, minutes from the most recent US Federal Reserve meeting are released at 1800 UCT. A move below the 15150 support will trigger additional selling, while a move above the 50-period moving average is needed for the bullish trend to resume.

GOLD –  Gold hit its highest level in more than a week, ending yesterday’s session at $1743 as the greenback and bond yields retreated with the latter heading towards %1.60. Investors focus on President Biden’s speech today along with the Federal Reserve’s most recent minutes release. An hourly close above $1744 resistance level is needed to further boost bullish momentum with $1754 as the next closest target.

USOILWTI Crude continues to trade in a range between $58/$60 support/resistance level, while forming a higher high at $59 after weekly API crude inventory data fell by 2.6Mb. Faster vaccination rollouts in the US, with Europe now aiming to immunize the majority of people by June is keeping energy prices supported ahead of official EIA data expected later today. A breach of the trading range is required for clearer direction with technicals favoring a retest to the upper band, coinciding with 200 period SMA.

 

 

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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