Risk has rallied and USD sold off after a weak NFP print and moves towards another US fiscal stimulus package. It is another important week for US yields with a record amount of treasury auctions as well as inflation data on Wednesday
As we pointed out yesterday the NFP print was weak enough to keep the US in a goldilocks scenario where monetary and fiscal policy can remain loose. The Fed’s Barkin joining the chorus of more dovish FOMC members from last week. He said they need to focus on being supportive and is more concerned with medium term inflation expectations than short term price volatility.
The US inflation data on Wednesday will be important. If it comes in too strong it could reignite tapering concerns and lead to a stronger USD and risk off moves. If it’s in line or weaker the current trends can continue. We will also hear from Powell on Wednesday.
Overall, the reflation trade is back, and the market seems comfortable getting back on the USD trend lower and risk higher trades. There is some concern about vaccine resistant strains of the virus but so far vaccines are effective enough for it not to be too concerning.
We are generally expecting the market to continue buy growth currencies and sell the EUR, JPY, CHF and the dollar as it is back to its trend lower after position reduction last week.
- The dollar/ yen is currently caught between crossJPY buying for reflation trade and USD selling so expecting it to remain range bound unless sentiment turns sour. 104.50 is the next support in and the 105.77 high resistance on the topside.
- NZDUSD 50day MA at 0.7152 has provided good support. Resistance at previous high 0.7315. Similarly, AUDUSD bounced from just below the 50dayMA, now comes in at 0.7634, 0.7820 high the resistance on the topside.
Numbers to Watch
- Reduced political risk in Italy is supporting EUR, which has allowed EURUSD to trend higher towards the 1.1950 support.
- GBPUSD has made moves higher overnight. 50day MA at 1.3568 is the support on the downside.
- EURUSD – Tesla’s $1.5 billion Bitcoin purchase halted the US dollar’s upside momentum yesterday, extending Friday’s losses after the dismal NFP data. Slower-than-expected economic recovery gives support for President Joe Biden’s fiscal stimulus plan worth $1.9 trillion. For those reasons, we shift our bias to long once again, targeting 1.2170 in the near-term.
- GBPUSD – The cable broke above the multi-month top 1.3750, opening doors for further bullish momentum which could take the pair towards 1.40 in the medium-term. However in the near-term, with the recent dollar weakness and US stimulus hopes, the pound will probably keep on the rise towards 1.38 and 1.3850.
- USDJPY –The Dollar/Yen dropped from the 200-Day moving average hitting its lowest level since February 1 threatening to erase all of this month’s gains. The current downside momentum suggests bearish traders see continued easing Fed monetary policy coupled with massive fiscal spending dragging down the dollar over the long-run. On the short-run, technical indicators suggest a rebound from the key support level at ¥104.65.
- FTSE 100 –The FTSE100 is seen opening slightly lower today giving back some of Monday’s gains amid concerns that the AstraZeneca vaccine does not offer protection against mild and moderate disease caused by the variant from South Africa, though investors remain optimistic that a hefty US financial aid package will get over the line. From a technical perspective, the UK benchmark tested the 200-period moving average twice yesterday, failing to break below it, thus it seems that the old resistance at 6510/20 may have turned support, although there is no bullish signal on longer term timeframes yet. The next key resistance to watch sits at 6550.
- DOW JONES – Stocks on Wall Street are set to open slightly lower today after having seen the Dow post yet another record close in trading yesterday while bitcoin also touched an all-time high at 47000 after Tesla declared itself an investor in the cryptocurrency. With no data of note today, investors turn their attention back to President Biden’s rescue package although it may be reduced from its initial USD1.9 trillion price tag as it makes its way through Congress. The next key support level for the Dow index is the 50-period moving average around 31225.
- DAX 30 –The German DAX hit our support level at 14100 yesterday as it retraced back lower following data showing that German industrial production decelerated in January. Looking ahead, traders will monitor corporate earnings with Thyssenkrupp and Commerzbank scheduled to report this week. Moreover, economic statistics this morning showed that the German trade surplus widened from €16 billion to €16.1 billion versus a forecast of €15.9 billion but index futures are still hinting at a slight breather in early trades as DAX technical indicators point to a retest of 14000 as our next support and target.
- GOLD – A weakening greenback coinciding with Tesla’s $1.5B investment in Bitcoin, boosted higher prints on the yellow metal, securing a second consecutive close in the green. Technically, an hourly close above $1840 resistance level will favor higher prints with 1840 as the next closest resistance target.
- USOIL – Energy markets continued to lead the reflation trade with WTI Crude closing above $58pbl in yesterday’s session, as investors turn to API weekly inventory data to be released later today with the previous week registering a drawdown of -4.261Mb. Momentum indicators are signaling a correction lower with $58 support level as closest target to be confirmed with the current hourly candle closing below $58.35.
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.