Daily Market Analysis and Forex News

It was certainly another eventful week for financial markets.

Despite the slow start on Monday, there were plenty of major economic releases and developments that kept investors occupied throughout the week. One of the major topics across markets was the OPEC+ drama that left many guessing over the future of the cartel’s output deal.

In the currency space, king dollar took a backseat to kick off the week with the DXY descending closer towards the magnetic 92.00 support level. 

On Tuesday, we briefly discussed the scenarios that could play out after OPEC+ abandoned output talks with no new date set for more discussions. Gold also caught our attention after appreciating above $1800 amid a weaker dollar and easing concerns over the Fed raising interest rates sooner than expected.

Some focus was directed towards the Eurozone retail sales and German data. Eurozone monthly retail sales beat expectations in May after a drop in April while the German ZEW Economic Sentiment tumbled to 63.3 in July, down from 79.8 in the previous month.

Our trade of the week was crude oil which hit its highest level since November 2014. Despite oil prices later depreciating as the OPEC+ uncertainty lingered, WTI crude is still up over 53% year-to-date while Brent crude is trailing behind gaining almost 46%.

As the week progressed, the sentiment pendulum swung into “risk-off” territory amid rising concerns over the reflation trade, slowing economic data, and the Delta variant. There was action in the bond markets as yields on the US 10-year Treasury tumbled in response to worries over global growth.

It was all about the FOMC meeting minutes on Wednesday evening. The minutes delivered no surprises and painted quite a nuanced picture in contrast to the hawkish outlook and dot plot in June's policy meeting. Although Fed policymakers talked about tapering, officials were not ready to provide a timeline thanks to uncertainty over the economic outlook. 

The developments in the bond markets hijacked headlines on Thursday after the 10-year U.S Treasury yield tumbled as low as 1.248%, its lowest level since February. 

Interestingly, equity bulls returned to the scene on Friday as the sentiment pendulum swung in favour of risk as growth concerns eased. Treasury yields staged a rebound from multi-month lows while the S&P 500, Dow Jones and Nasdaq closed at record highs.

In the commodities arena, gold concluded the week above the $1800 level. Focusing purely on the technical picture, a move towards $1825 is looking like a possibility in the near term. If gold bugs can push prices beyond $1825, the next key levels of interest can be found at $1842, $1870, and $1900. If prices sink back below $1800, a decline towards $1760 and $1735 could be on the cards.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk off sentiment has been growing this week as Covid cases rise with the Delta variant and various countries continue with lockdowns in locations with higher cases. This has seen fixed income assets get bought, commodities sell off and the yen in demand. Lingering concerns over global growth have darkened the mood in Asia this morning while the Chinese tech crackdown continues to hurt stock markets in the region, with US futures in the red.

No surprises in the FOMC minutes

The Fed minutes painted quite a nuanced picture in contrast to the hawkish outlook and dot plot many observers initially took from the meeting. Officials still see a lot of questions on inflation, the labour market and growth, even as taper talk continues. Some members urged caution and wanted to see more data in order to better assess the economy while others hinted that tapering may start earlier than expected given the stronger economic outlook.

The end of the year seems the likely time for tapering of QE and bond buys but the form and speed it takes will be driven by the data. Although the minutes point to tapering starting in December, many expect the pressure to grow through the summer.

USD remains strong, yen too

The market was unmoved by the Fed minutes and bond yields have continued lower, below 1.28%. King dollar is flat on the day so far but has furthered its advance with EUR/USD trading around 1.18. 

As yields are falling so USD/JPY has pushed lower and is now trading below 110. The yen is the strongest major in July with safe haven currencies in demand.

USD/JPY looks to have broken the upward trendline from the April lows and is heading towards next support at the 50-day SMA around 109.78. Bearish momentum is strong with a Fibonacci retracement level at 109.51 offering the next support level.

ECB changes strategy

ECB policymakers have agreed to raise their inflation goal to 2% and allow room to overshoot if needed. This is a significant change form the previous target of “below, but close to 2%” and could give justification for sustaining ultra-loose monetary policy as the bank strives to reverse years of below-target inflation.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

For much of last year, it was tech stocks that were posting multiple new record highs. These days, it’s been more traditional indices such as the Dow Jones index and the S&P 500 that are laying claim to such achievements.

US stock markets kicked off the new trading week on a feel-good note.

Investors continue to grow more optimistic about the economic outlook, thanks to President Joe Biden’s $1.9 trillion fiscal stimulus package and the continued dissemination of the Covid-19 vaccine. Despite several European countries pausing the rollout of the AstraZaneca vaccine, market participants were able to look past such concerns, with such setbacks hopefully temporary.

Dow flirts with 33,000

Respectively, the Dow and the S&P 500 reached their highest closing prices ever. The 125-year-old Dow Jones index was propelled higher on Monday by consumer discretionary stocks such as McDonald’s and Nike. The Dow has now notched 7 consecutive days of gains, its longest winning stretch since August.

The Wall Street 30 minis are now just shy of the psychologically-important 33,000 line. Although the momentum indicator still points to bullish sentiment, its 14-day relative strength index denotes overbought conditions have been reached. That suggests that a healthy and necessary pullback could be in order over the immediate term.

Still, the Dow appears well supported amidst the reflation trade, as the index continues being guided upwards by its 50-day simple moving average (SMA).

S&P 500 soars with 4,000 level in sight

The S&P 500 has recorded its 5th straight daily advance. This blue-chip index was boosted by aviation counters such as United Airlines and American Airlines, which climbed 8.26% and 7.7% respectively on Monday. Intriguingly, the top two-performing sectors on the S&P 500 on a year-to-date basis, namely financials and energy, were the only sectors to post declines yesterday.

As long as investors can remain confident that the world is taking further positive strides towards the post-pandemic era, the S&P 500 looks set to attain the 4,000 handle in the immediate future, with such a psychologically-important level just less than one percent away.

Nasdaq rebound to encounter technical and rotation resistance

Much has been made about the spike in Treasury yields roiling global equities, especially for the more expensive tech stocks. Hence, the fact that the 10-year yields climbed back down below the psychologically-important 1.60% has allowed some breathing space for this sector.

The Nasdaq 100 advanced 1.12% on Monday, pushed higher by some usual suspects:

• Apple: +2.45%
• Tesla: +2.05%
• Facebook: +1.99%

The Nasdaq 100 minis look set to test their 50-day SMA, with stronger resistance set to arrive around the 13,350 region. A breach of the 13,350 mark would be a notable technical event, as it would mark a higher high from the resistance levels that proved resilient in late February through early March.

Still, tech stocks are expected to struggle under the weight of the ongoing rotation from more expensive tech stocks to other sectors that are now playing catch up.

What could push US stocks higher today?

Investors will be keeping a close eye on Tuesday’s key US economic data releases:

• retail sales (February)
• industrial production (February)

Wall Street is expecting a 0.5% contraction in February’s retail sales compared to the month prior, as the boost from January’s stimulus checks faded while freak winter storms wreaked havoc on spending patterns in several states. Still, with more stimulus checks being sent out to US households this week, investors are likely to hold on to their optimism and expect another positive bump to US retail sales for this month.

Meanwhile, last month’s industrial production is set to register a 0.3% month-on-month increase, which would be its lowest reading since September’s negative print, with February’s weather disruptions set to be taken into account.

Overall, better-than-expected data could spur more risk-taking appetite, potentially pushing US stock indices to fresh record highs ahead of Wednesday’s keenly-awaited Federal Reserve meeting.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Global investors are readying themselves for two major events today:

1. The February US consumer price index (CPI) announcement
    
2. The House of Representative’s possible vote on the $1.9 trillion fiscal stimulus plan

Both events could spur inflation expectations higher and trigger a massive reaction in Treasury yields, which could then jolt multiple major assets including the dollar, gold, and tech stocks.

Wall Street is expecting the headline CPI to register a year-on-year growth of 1.7%, which would be its highest reading since February 2020, before the pandemic took hold. And the vote on President Joe Biden’s pandemic relief bill, if passed, could strengthen investors’ belief that inflation will come roaring back.

Heightened inflation expectations are arguably the biggest talking point in global markets at the moment. And with this viewpoint gaining critical mass, investors are forced to reassess their portfolios.

Today’s release of the CPI figures, though backward-looking, may lend more insight as to whether markets are getting ahead of themselves, or if their repositioning of late has been warranted.

92 DXY depends on higher-than-expected CPI

At the onset of 2021, most on Wall Street were firm in their belief that the US dollar would weaken further, based on the idea that faster inflation would erode the greenback’s purchasing power.

Yet the dollar index (DXY) has advanced by more than 2% on a year-to-date basis, thank to those rising Treasury yields which in turn make dollar assets more appealing.

So here we are, with the Dollar index hovering just below the 92 mark at the time of writing, despite completing a head-and-shoulders pattern earlier this year.

The DXY’s pullback yesterday to around the 92 line was in tandem with moderating yields on Tuesday, as 10-year yields fell by some 7 basis points. There were technical factors at play as well, with the DXY’s 14-day relative strength index (RSI) hitting the 70 line. Such a technical event typically heralds an immediate pullback, as was the case overnight.

Although momentum is still pointing north, the dollar index’s ability to hang on to the 92 handle may depend on the upcoming inflation data release.

A lower-than-expected CPI could mean further moderation in Treasury yields, which in turn should translate into the DXY paring more of its recent gains. However, the passage of the fiscal stimulus plan could convince investors to stick with their inflation outlook, which has supported the DXY so far in 2021.

Gold resurfaces above $1700 … for now

Gold prices have been able to come up for air above the psychologically-important $1700 level, thanks to the moderating dollar.

Note that bullion has an inverse relationship with the greenback; each tends to move in the opposite direction to the other. From a technical perspective, spot gold’s reprieve comes after its 14-day RSI hit oversold territory which triggered the slight recovery.

Still, gold’s downward trend since posting its new record high in August remains firmly intact, with its 100-day simple moving average (SMA) having followed its 50-day counterpart to move below the 200-SMA. These technical events are referred to as a ‘death cross’.

Although gold has historically been seen as a hedge against inflation (preserve wealth when prices are rising), it now has to contend with rising Treasury yields too. Given the fact that bullion is a zero-yielding asset, higher Treasury yields make gold less appealing. And even though real yields (yields after stripping out inflation) remain in negative territory, gold is still finding it extremely tough to garner favour among investors in this current market climate.

So if today’s events translate into higher yields, that could drag gold back below the $1700 once more.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The surge in Treasury yields sent shockwaves across broader markets on Thursday, with 10-year yields briefly breaching the 1.60 mark to hit a new one-year high before moderating. At the time of writing, 10-year yields remain some 40 basis points higher on a month-to-date basis.

The steep ascent in yields is prompting investors to cast serious doubt over their exposure to equities, especially for tech stocks. The Nasdaq Composite index has seen its February gains whittled down to 0.37%, with US equity futures pointing to further declines at the Friday open.

Asian benchmark indices are ending the month on a downer, while the rising yields are giving reason for the dollar index (DXY) to keep its head above the 90 psychological level for the time being. The VIX index, also known as Wall Street’s fear gauge also shot above the 30 mark shortly before the US session ended.

Markets paying little heed to the Fed’s narrative

Investors clearly have a hard time buying into the Fed speak insisting that its too early to talk about tapering. Despite repeated attempts this week by Fed Chair Jerome Powell and other Fed presidents to reframe the narrative, saying that the rising yields are indicative of a rosier economic outlook, investors are instead interpreting the economic data through the US monetary policy lens.

While cognizant of the Fed’s desire to avoid the same policy missteps following the global financial crisis over a decade ago, markets however are of the opinion that improving US economic conditions will cajole the central bank into tightening their policy settings sooner than expected. Fed funds futures are already pointing to an interest rate hike that’s brought forward to end-2022.

The better-than-expected economic prints released this week, including the weekly initial jobless claims, January durable goods orders, and February consumer confidence, are only adding fuel to expectations that the Fed will have to bring its tapering plans forward, despite policymakers’ insistence otherwise. And with President Joe Biden’s $1.9 trillion fiscal stimulus programme still in the pipeline, investors are ramping up the chances of an overheating US economy that’s accompanied by the desired inflation overshoot, which in turn shortens the runway till the Fed’s eventual pullback.

With such a debate raging in the markets, we can expect to see more volatile days ahead until markets can reach a greater consensus and a firmer understanding over the Fed’s next policy steps, which should in turn offer a new equilibrium for Treasury yields.

Gold set to post second straight monthly decline

Spot gold is on course to register its 6th monthly loss from the past seven, with rising Treasury yields dealing a blow to the non-yielding precious metal. Bullions year-to-date losses stand at 6.7% at the time of writing.

Despite the threat of rising inflation, investors are clearly willing to ditch gold in favour of other assets that can better ride on the economic recovery’s coattails, as well as the subsequent inflation overshoot. Gold ETFs have shed their holdings by more than 2 million ounces so far this year.

Gold bulls will have all to do in attempting to break the precious metal out of its current downtrend, barring any Fed intervention in quelling the yields surge.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.