Date Thursday 8th of April 2021
Drivers
  • Fed members Kaplan and Evans downplaying the risks of inflation yesterday and again solidifying the Fed’s message that they will look through any short-term spikes in inflation.
  • Concern around possible side effects of the AstraZeneca vaccine is leading countries to limit the shot for younger age groups. This will slow down the vaccination progress.
  • New Zealand ANZ Business Confidence came in weak at -8.4 showing how confidence continues to deteriorate due to a lack of tourists.
  • RBA Financial Stability Review on Friday. After data last week showed that house prices in Australia continue to accelerate, we could see excessive house price rises mentioned in the stability review. Will be interesting to see if they consider any macro prudential measures to limit house prices like New Zealand did.
  • News flow is quiet but the moves in FX are starting to gather momentum. The pull-back in G10 yields is leading a sharp pull back in the typical reflation trades that had performed so well this year. Buying AUD, NZD, and CAD due to commodity and growth exposure and buying GBP and USD due to fast vaccine roll outs became consensus trades. Meanwhile the market was selling JPY, EUR and CHF as their yields remain capped by their respective central banks. The growing yield divergence was supporting these trends with crossJPY being chased higher into Japan fiscal year end. Now as yields pull back these consensus reflation trades are under pressure with CAD and GBP taking the brunt of the selling as positions are cut.
  • Medium term the reflation trades still make sense as economies return to strong growth once reopened but it seems the market got ahead of itself. In the short term feels like the pull back in crossJPY can go deeper as JPY positioning flipped from short to very long over the last few weeks and suggests plenty of JPY was sold on a 110-handle in USDJPY. CADJPY can potentially pull back to 86.00 as tighter restrictions in Canada, Europe, and India weigh on oil. NZDJPY also joining the move now with weak ANZ Business Confidence showing how the NZ economy is losing steam without tourists.
  • EURUSD popped up to 1.1915 yesterday, squeezing out short positioning. EURUSD has since come back offered pulling back below the 200dayMA at 1.1894. Still like being short against that high as still expecting US outperformance against the EU due to the EU’s slow vaccine roll out and renewed lockdowns.

Market Updates

EURUSD The Euro accelerated past 1.19 following FOMC minutes, before reversing back below the 1.1875 resistance earlier this morning. The momentum as measured by the Relative Strength Index (RSI) still looks strong, especially since Eurozone PMI prints yesterday showed a bounce in business activity adding to the optimism that the EU will have sufficient supplies to vaccinate at least 50% of its populations by June. But the EURUSD will have to close above the 200-Day SMA to follow through. Alternatively, a dip below the 50-period moving average around 1.1860 will trigger an acceleration to the downside ahead of the US jobless claims due later today.

GBPUSDCable trades above 1.3750 extending the overnight recovery from near 1.3725 as the US dollar corrects lower following the FOMC minutes yesterday coupled with a successful rollout of the Moderna vaccines which is speeding up the vaccination campaign in the UK. A sustained move above 1.3765 to push GBPUSD to a retest of the 200-period moving average around 1.3820.

USDJPYWe highlighted yesterday that there is a strong possibility for USDJPY to test the ¥109.65 support. However, after three consecutive tests, the forex pair has failed to break this key level, despite Wednesday’s upbeat Fed minutes and a current account surplus in Japan of ¥2.92 trillion versus a forecast of ¥1.97 trillion. A breach of the ¥109.65 support will trigger an acceleration to the downside ahead of today’s US Jobless Claims report and a speech by Fed Chairman Jerome Powell.

FTSE 100A successful rollout of the Moderna vaccine is speeding up the vaccination campaign in the UK and boosting sentiment, as the FTSE100 surged past the 6840 resistance level reaching as high as 6915 ahead of UK Markit construction PMI at 0930 BST. A sustained move above 6915 to trigger an acceleration to the 6960 yearly highs, however momentum as measured by the RSI is fading, with a break of the 50-period moving average around 6880 to prompt further declines back to 6840.

DOW JONESUnanimity over Fed Chair Powell’s dovish view boosted risk sentiment in yesterday’s session, pushing stocks to another round of all time highs, with Janet Yellen’s new tax code continuing to take a back seat. Resurging Covid-19 cases along with potential vaccine bottlenecks could dent investor optimism in today’s session, with 33573 the key resistance level needed to be breached for further upside.

DAX 308th consecutive close in the green for the German index, tracking its American peers higher as the S&P 500 registered another record on the back of a united Fed view on the need to see more progress on recovery before any tapering attempts. Just released German month-on-month factory orders came in as expected at 1.20% with all eyes on Eurozone PPI data along with the ECB’s monetary policy meeting accounts. Failure to breach 15324 resistance level will favor a pullback towards 15150 support.

GOLD –  Gold has formed a base above $1736, with bullish momentum building up, awaiting a confirmation on an hourly close above $1744 to open the door to further upside with $1754 and $1760 as next targets in extension. Yesterday’s Fed minutes confirmed once again the Fed’s accommodative stance, with all eye’s today on Powell’s comments (at the panel about the global economy) and Initial Jobless Claims data (consensus at 680K).

USOILRising Covid-19 cases with India topping 100K daily infections, Canada’s most popular province declaring a state of emergency, along with ongoing AstraZeneca vaccine drama, is keeping a lid on higher prints on WTI Crude, despite EIA inventory data hitting a five-week low. Technicals favor another retest of $58.50 support level in today’s session, with an hourly close below it to strengthen bearish momentum.

 

 

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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