It still feels like we are in a market dominated by risk reduction, even after the small bounce in sentiment and USD pull back. The markets are struggling to see the upside even with positive vaccine news. Time to check exposure.
A new vaccine from Novavax was effective in trials in UK and South Africa although the effectiveness appeared to be reduced in South Africa due to the mutated variant of the virus. AstraZeneca is currently conducting tests on the efficacy of their vaccine against the variant in South Africa, results should be known next week. Pfizer’s studies showed that their vaccine is effective against both UK and South Africa variants and that neutralization was only slightly lower against the South Africa variant, not a significant reduction in effectiveness.
- PBOC continues to drain liquidity from the system which is tightening financial conditions. This could weigh on risk sentiment in Asia.
- US GDP slightly below expectations 4% Annualized QoQ vs 4.2% exp. Although initial jobless claims were slightly stronger than expected.
- USDJPY was able to push up through the psychological 104.50 overnight. Positioning should now be cleaner which could allow crossJPY to trade lower in light of risk off sentiment.
With the slight reversal and USD pulling back it feels as though the rally in AUD and growth currencies in general provides an opportunity to get short as risk off sentiment persists. For AUD in particular the moves from the PBOC to drain liquidity from the system, the turn lower in Iron Ore and continued Equity volatility should put pressure on AUD
Numbers to Watch
- Short AUDUSD below 0.7700 and short AUDJPY below 80.50 makes sense short term as does like long USDCAD
- EURUSD still holding the 1.2050 level, 1.2059 low this week. Still waiting for that level to give before USD short position reduction is over.
- EURUSD – The euro keeps trading over/under 1.21 without any clear direction amid risk-off mood. However, a big beat on German GDP may put a bid under the single currency. We remain on the side-lines waiting for price to either break below 1.2050 or above 1.2140.
- GBPUSD – The cable remains range bound between 1.3750 and 1.3615, as traders await further clarity in the risk sentiment. The bulls are starting to lose momentum as the recent dollar strength is spooking the market. If risk sentiment deteriorates further, then we could see further downside on the Pound towards 1.3640-1.3615.
- USDJPY – USD/JPY is currently printing above a 1-year downtrend after ending yesterday’s session in the green, as the greenback climbed on rising concern over new Covid-19 variants reaching the US. The yen was also driven lower on typical flow driven activity common around the end of the month. If bullish momentum persists, then we could see further upside momentum towards 105.
- FTSE 100 – The FTSE100 hit both our support targets at 6475 and 6440 yesterday before seesawing back up and down in a very choppy trading session. With no data scheduled to be released out of the UK today, stocks are set to extend losses as the end of a mixed month draws to an end, with 6440 and 6400 as next support levels and targets.
- DOW JONES – The Dow Jones rebounded Thursday following an improved reading on weekly jobless claims despite a weaker than expected Q4 GDP data. The significant surge, from the previous day’s close around 30250, took the index all the way to the 200-SMA on the hourly chart (orange line) which in turn acted as resistance pushing the index back lower. This move triggered a “Long Tail Up” reversal pattern (on the Daily Chart) suggesting more weakness ahead with a breach of the 30300 support today to favour a move lower with 30090 as next near-term support.
- DAX 30 – European markets finished lower yesterday following a very choppy session as the euphoria at the start of January has given way to concerns about lockdowns and tighter restrictions. Markets are set to continue lower today, as the EU is set to impose export controls with Belgium already requesting option to curb drug exports. We’ll also get our first look at how the German economy performed in Q4 today, with a weaker than expected data to trigger accelerated selling on the DAX index to the 13370-support level.
- GOLD – Gold held above our key 1835 support level in yesterday’s session, as investors digested a weaker annualized GDP QoQ of 4% vs. an estimate of 4.2% while Initial Jobless Claims registered a slight improvement, coming in at 847K vs. a previous of 900K and an estimate of 875K. Rising US10Y yields is keeping the yellow metal under pressure with 1850 the key resistance level to breach to open the door for further upside.
- USOIL – WTI Crude ended yesterday’s session on a third consecutive close in the red, printing a high at $53.55 only to erase gains and hit our support level at $52 in early trade today, as the new Covid-19 variant identified in South Africa made its way to the United States amidst recurring lockdowns in Asia and Europe, weighing down on global demand recovery. Failure to retrace towards $52.60 resistance level will confirm strong bearish momentum with $52 and $51.60 as next support targets.
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.