Date Tuesday 6th of April 2021
Drivers
Three days after a monster jobs report, US Services ISM came in at a huge 63.7, the fastest pace of growth on record and most global stock indices rose to fresh record highs. The Nasdaq Composite is accelerating higher after taking out a key resistance point at 13300 last week, which may have caused some short covering. Is big-tech back? Time will tell. The FAANG stocks seem to be leading higher, and even Tesla gained 5% yesterday.

The Dow Jones Industrials also surged to record highs as Microsoft, a Dow component, reached a record price of nearly $250 per share, while Walgreens Boots Alliance, another Dow component, advanced 3.74% hitting a new 52-week high.

However, Crude Oil took a sharp move lower with WTI futures falling as much as 5.9%, as lockdowns in Europe are hitting the demand side just as OPEC+ gradually increases supply. There is also the possibility of the Iranian nuclear deal being revived, in addition to India, Europe, and Canada tightening virus restrictions so we expect oil prices to soften further. We like USDCAD long here against 1.2468 support and short CADJPY below 88.30 high.

The theme of US and UK outperformance still holds and is set to continue due to the pace of vaccinations. Europe and Canada are experiencing a resurgence of virus cases leading to lockdowns whilst their vaccine roll outs are slow so expect USD and GBP to outperform EUR and CAD. Next EURUSD resistance at the 200-day SMA around 1.1830 / 50.

Services PMI’s for Europe on Wednesday will give some insight into the impact of renewed lockdown measures as France goes into a third nationwide lockdown.

Canada employment numbers on Friday will give us an overview of how the labor market is doing there, as Ontario began a four-week lockdown on Saturday while Quebec is also closing schools and non-essential stores for 10-days in some regions.

Fed’s Mester firming up the view from the FOMC that they will be patient, a line the market has heard multiple times but seems to ignore as still pricing in more than 3 hikes in 2023 even as the FOMC projects rates on hold through then. The strong data coupled with a muted reaction in US yields is providing a strong backdrop for risk sentiment with equities marching higher and risk currencies pacing gains. USD is lower across the board with USDJPY even pulling back to 110 level despite the strong US data, however we are still buying dips on that forex pair with the 110.85 resistance as nearest upside target.

Market Updates

EURUSD The Euro initially pulled back on Monday, hitting our support level at 1.1740, before reversing and rising significantly higher despite holiday-thinned trade and a better-than-expected US ISM Services PMI. The Euro of course continues to look very weak longer-term, unless the bulls manage to break above resistance at 1.1820 and more importantly the 200-day SMA around 1.1830.

GBPUSDIn another impressive bullish wave, the British Pound surged above the 1.39 mark driven by a weakening greenback, moving in tandem with retreating US Treasury yields, coupled with the UK planning to ease lockdown mid-April. The GBP/USD is now within striking distance of key trendline resistance at 1.3950, with the RSI pointing higher signaling strong upside momentum, it is only a matter of time before the 1.3950 target is reached.

USDJPYUSD/JPY dropped significantly yesterday as US Treasury yields retreated after stocks hit record highs on the back of strong ISM Services PMI data. The forex pair however rebounded off the 200-period SMA following a drop for the 3rd consecutive month in Japan’s household spending, despite a rise in real wages. On a short-term timeframe, the US dollar remains in bullish territory for now, with ¥110.05 to act as support while ¥110.40 remains our nearest upside target.

FTSE 100The FTSE100 is seen opening higher this morning after the long Easter holiday weekend, driven by robust US economic data. However, technically the UK index has not moved above the 6780 to 6800 resistance area yet, and therefore a retracement lower to the 50-period moving average around 6760 is expected. Alternatively, a sustained move above 6800 will trigger an acceleration to the upside.

DOW JONESMajor US indices surged higher after Treasury Secretary Janet Yellen said that President Biden’s proposed infrastructure plan will not lead to inflation. Investor sentiment was also boosted by a significant improvement in ISM services PMI data with the Dow Jones ripping to an all-time high of 33600 as Microsoft, a dow component, reached a record price of nearly $250 per share, while Walgreens Boots Alliance, another dow component, advanced 3.74% hitting a new 52-week high. Technical indicators today favor a retracement lower, with a retest of our support level at 33240.

DAX 30Germany’s DAX continues to print fresh record highs, as global stock index futures surged higher after strong US data, although it has retraced lower as the RSI indicator was signaling extreme overbought conditions. The index, however, should remain well supported above the short-term moving average around 15250 in addition to the key previous resistance turned support at 15150. A sustained move over yesterday’s highs around 15360 may trigger a bullish move higher with 15500 as target on the upside.

GOLDGold is printing in the green this morning, tracking US equities higher with the Dow Jones Industrial Average and the S&P 500 trading at fresh all time highs. US10Y yields retreating for a third straight day have provided a backdrop, supporting higher prints, with $1740 key resistance level needed to be cleared to open the door to further upside. While an hourly close below $1730 support, will favor further downside with $1718 as next closest support target.

USOILWTI Crude hit our short support targets, ending yesterday’s session well below the $60 handle driven by prospects of the US-Iranian talk starting later today, along with a resurgence of Covid infections and extended lockdowns in Europe. $60 resistance level, coinciding with the 200 period SMA, to direct today’s trading as investors await weekly API crude inventory data.

 

 

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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