Daily Market Analysis and Forex News

It looks like it’s “rotation” Tuesday again as US stocks paint a mixed picture – Nasdaq and stay-at-home stocks are in the green while the Dow is suffering. This is all down to two news stories, the first being the US CPI data which jumped as forecast but wasn’t at the highest end of estimates. Energy costs rose over 13% y/y but at first glance, the market is fairly sanguine and appears to be looking through the figures as transitory. Many economists are not too sure and see rising prices closer to 4% in the not-too-distant future. That means the rate hike priced in at the end of 2022 is about right, but the Fed don’t agree judging by the recent speakers.

Don’t fight the Fed

The dollar is lower as higher inflation readings are seemingly par for the course as far as the Fed is concerned. They have been arguing that significant spare capacity means these numbers will drop back towards its 2% target in due course. Bond yields are also lower having popped higher on the J&J news. If housing prices especially continue on their upward path, together with rapid job creation, then the Fed may have to change course, but “Don’t’ fight the Fed” is a phrase that has stood the test of time!

Dollar rolling over

The withdrawal of the Johnson & Johnson vaccine is a blow to the ongoing reopening of the world’s biggest economy. We said last week that USD was at an important juncture and the 200-day moving average looks to be capping any upside. A strong close below 92 could see the DXY break its recent narrow range and move towards 91.50 in the near term.

Bitcoin hits new record highs

The premier cryptocurrency looks to be breaking out in a textbook fashion. We’ve seen a series of higher highs and higher lows since January with the 50-day moving average supporting prices along the way. After cracking $60,000, prices have now pushed above $63,000 with the public offering of Coinbase adding to the euphoria of cryptos in general.

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.

It seemed the big “rotation” in stocks was rotating again this morning as investors were struggling to shake off concerns over coronavirus.

Those sectors pegged to the reopening of the global economy and rapid vaccine rollout were getting sold – see financials, energy and consumer stocks. On the flip side, tech shares were gaining once more as they are seen benefitting from lockdowns and working from home. That said, US stocks are modestly higher with the tech-heavy Nasdaq now getting sold into.

How much more good news is there to be priced into the dollar?

The dollar is continuing to benefit in this cautious environment with its strong performance over the past few weeks underpinned by rising growth prospects, increasing bond yields and the successful vaccination program stateside.

These major drivers for the greenback contrast with the Eurozone issues and are still weighing on the single currency, even as stronger than expected manufacturing data was released this morning. The PMI, a well-watched gauge of sentiment in the bloc, soared to a record high and even the downtrodden services sector, hammered by social restrictions, rose to a seven-month high. Crucially, the 48.8 print is still below the 50 benchmark that separates expansion form contraction.

The DXY has touched the 200-day moving average today and hit levels last seen in November.

Bullish momentum is on the rise again so today’s close above this important indicator will be significant if the bulls want to see more upside. Interestingly, the long-term seasonal performance of the dollar points to a likely peak towards the end of this month.

Bitcoin in the news, thanks Elon

Bticoin is up more than 4% today after Tesla chief Elon Musk said the company’s electric vehicles can now be bought using the cryptocurrency, with the option available outside the US later this year.

The digital currency has roughly doubled this year but is still managing to divide the opinion’s of professional investors.  Is it now reaching the threshold of becoming an investable asset, due to improving liquidity conditions, increasing acceptance by institutions and an evolving regulatory framework? Or will there be a brutal selloff once major regulators get to work and set some rules for the cryptocurrency space?

Bitcoin has bounced off a trendline from the late January low and last month’s high around $58,367 is the next upside target ahead of the psychological $60,000 mark.

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.

Tech stocks were the weakest link on Monday, driving global equities lower as higher Treasury yields fuelled the rotation from growth to value companies.

The stock market darlings of 2020 were turning out to be the most unloved this year with Tesla and Zoom Video Communications just a few examples. 

In the commodity arena, Gold snatched our attention after dipping below $1680. Given how the zero-yielding asset was under the mercy of an appreciating Dollar and rising bond yields, the path of least resistance was south.

Interestingly, the precious metal was able to find support just above $1675, offering bulls enough breathing room to stage a rebound.

On Tuesday you were probably wondering why the Nasdaq and Dow Jones were diverging? There were a couple of reasons, ranging from concerns that faster US inflation could result in a Fed rate hike to tech stocks seen to be highly overvalued. 

Our technical outlook focused on the EURUSD which was under pressure on the daily charts. We discussed the possibility of the European Central Bank ramping up their bond purchases in the face of rising bond yields.

The governing council decided to increase the rate of its pandemic emergency purchase program at a “significantly higher” pace over the next quarter.

As the great rotation took a breather, this injected equity bulls with a renewed sense of confidence. Tech stocks staged a rebound, while the dollar surrendered gains as yields fell.

All attention was directed towards the US inflation data mid-week. US CPI numbers were in line with forecasts as the headline increased to 1.7% y/y. The soft US consumer prices calmed inflation fears, injecting equity bulls with fresh inspiration. Wall Street stocks extended a record-breaking rally on Thursday with the Dow Jones hitting 32669.

Let’s not forget Tesla which closed almost 20% higher on Tuesday, its biggest single-day gain since February. Shares of electric car maker roared back to life thanks to a rally in Bitcoin, the “great rotation” taking a breather, and reports that car sales in China climbed last month.

Tesla shares are on route to concluding the week over 13%.

A sense of optimism swept across markets after US president Joe Biden signed a $1.9tn stimulus package into law. The legislation includes $1400 direct payments to American earnings $75,000 a year or less. Given how this could result in a jump in consumption as early as April, concerns around rising inflation are likely to linger in the air.

The week ahead promises to be filled with fresh action as central banks hijack headlines. Although the Federal Reserve, Bank of England, and Bank of Japan are expected to leave monetary policy unchanged, the focus may turn towards the press conference and statement. The European Central Bank has already made a move against rising bond yields, does this open the doors for other central banks to act? Time will tell.

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.

If you have an appetite for volatility, then feast your eyes on Tesla.

Shares of the electric car marker closed almost 20% higher on Tuesday, their biggest single day gain since February 2020!

This development has brought bulls back into the game, halting a five-day slump that saw shares drop 21.63% before Tuesday’s rally.

Why did shares rally?

• Buying sentiment towards Tesla shares was boosted by a rally in Bitcoin. Remember when Tesla announced that it bought $1.5 billion worth of bitcoin and said it would start accepting the cryptocurrency as a payment method for its product? Well, the company stocks are now strongly linked to the performance on Bitcoin!
• In yesterday’s afternoon report, we discussed how the “great rotation” was taking a breather. This pause in the rotation trade offered a chance for tech stocks to stage a stunning recovery.
• Reports that car sales in China climbed in February while local rivals saw declines. The electric car market sold 18,318 Shanghai-made Model 3s and Model Ys last month, up 18.3% from the 15,484 sold in January.
• A change in overall sentiment towards expensive technology stocks, magnetizing investors back towards Tesla and other EV markets.

Musk laughing all the way to the bank

Imagine making $25 billion in one day?

After Tesla Inc.’s near 20% jump on Tuesday, this became Elon Musk’s reality. Such has pushed the billion founder’s fortune to a whopping $174 billion, narrowing the gap with Jeff Bezos, the world’s richest person.

Will bulls remain in the driving seat?

Tesla continues to reinforce its position as the leading electric car marker globally, even with competition heating up.

After taking a giant step towards blue-chip respectability last year, its market value has swelled to over $640 billion.

Over the past few weeks, there have been some sharp selloffs, especially after higher Treasury yields fuelled a rotation from expensive growth stocks to value companies. This is telling on the company’s shares which are down over 4.5% year-to-date. However, the business outlook remains encouraging with average annual growth in vehicle deliveries set to hit 50% over a multi-year horizon. It just remains a question of whether bulls could weather the great rotation punishing expensive growth stocks. Time will tell.

What about the technicals?

Tuesday’s rally could be a turning point for Tesla shares.

Prices are trading back above the 100 Simple Day Moving Average while the RSI has rebounded from the oversold territory (below 30.00). An intraday breakout above $680 may encourage an incline towards $718.33 and $767.33.

Should prices fail to break out of the daily bearish channel, this could result in a decline back towards $619.10 and $557.98. Overall, lagging indicators are offering a mixed picture. Although the MACD trades to the downside, the RSI signals a possible rebound.

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 current big theme in the markets is taking a breather today and it’s hard not see to why it shouldn’t pull up a chair, put a hand on one knee and take stock of where it’s been.

Stocks that underperformed at the height of the pandemic like airlines and bank have been steaming along and leading the market. For instance, European bank and energy sectors have risen 20% and 13% respectively this year. On the flip side, this pick up has come at the expense of the tech-fuelled Nasdaq which has slumped into correction mode with a 10% fall from its February peak, but is bouncing today and trying to navigate above the 100-day Moving Average.

Dollar-negative mood

The dollar is also retracing some its gains after four successive days of gains.

Overall risk sentiment remains improved with significant state-backed funds support for the market seen in China overnight, after it initially suffered losses of over 3%.

This weakness in the greenback has seen a correction in EUR/USD after the world’s most traded currency pair got close to its 200-day Moving Average at 1.1829, for the first time since May last year. A test of Monday’s high around 1.1932 offers a first line of resistance followed by the February lows in the mid-figure area of 1.1950.

“Vaccine trade” turns lower once more

Sterling is doing relatively well versus its major brothers this month, aside from the oil-propelled CAD and commodity-boosted AUD. It continues to push further against the euro, with clear divergence in the pace of vaccination and the central bank’s outlook.

There now even speculation that the Bank of England could lay out a tapering of asset purchases as soon as its meeting this month.

These clear GBP tailwinds are being reflected in GBP speculative positioning, with pound sterling longs now close to levels last seen in April 2018.

The February spike low in EUR/GBP is the next target for GBP bulls which comes in around 0.8538. The springtime lows from two years ago then appear to be the next area of support just below 0.85. Momentum indicators are strongly oversold across several timeframes, although these have eased in the very near-term time periods.

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.