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With economic activities gradually return to pre-pandemic levels, demand for crude oil…

With economic activities gradually return to pre-pandemic levels, demand for crude oil in either industrial or household use may outrun supply in the short term, therefore causing a surge in oil price

20210621
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Market Focus

US equity market declined on four consecutive days. The Dow Jones Industrial Average index suffered the most, dropped 1.58%. Meanwhile, the tech-heavy Nasdaq and the S&P 500 index also fell 0.81% and 1.31% respectively. All sectors within the S&P 500 settled in the red.

The European Central Bank will allow banks to exclude deposits held at the central banks when calculating their leverage ratio until March next year. The ECB’s attitude toward a loose leverage ratio is a strong contrast to the US, which the Fed has ended a similar exemption in March. It further reveals European banks’ dependence on bank loans, rather than capital markets, as a source of corporate financing.

Michael Burry, one that is famous for winning bet against housing bubbles in 2008, has warned retail traders about “losses as the size of countries” in the event of crypto and meme-stock declines. “When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed,” tweeted from Burry. Worth mentioning today is quad-witching day, with tons of stock and index options set to expire, options’ gamma will also deplete. It will take some time for gamma to refill, which leaves room for volatility to kick in.

Main Pairs Movement

The US dollar rally continues on Friday, with the dollar index soared to 92.2 from pre-FOMC’s 90.5, refreshed the largest weekly gain since last March. Non-US currencies are flashing oversold across four-hour and daily timeframes, and we anticipate a cool-off or rebound during next week’s trading.

All other major currencies were dropping against the dollar greenback on Friday except for the Japanese Yen. The 10-year US Treasury yields have been falling on Thursday and Friday, dipped a total of 14 basis points to settle around 1.447%. It seems like investors are pricing in high inflation shortly as observed from a tightening in the 2- and 10-year bond yield spread. Short-dated bonds are less desirable if near-term inflation remains high, the shift in demand from short-dated to longer-term bonds will create downward pressure on long rates. With rates dropping in the long-end of the yields curve, carry trade investors want to undo their position, thus enhance the value of the Japanese Yen.

Oil price continues to advance after a temporary pullback. With economic activities gradually return to pre-pandemic levels, demand for crude oil in either industrial or household use may outrun supply in the short term, therefore causing a surge in oil price. We may see yet accelerating upward momentum in fuel price as of summer approaches. WTI and Brent crude oil gained 0.87% and 0.55% on Friday.

Technical Analysis

XAUUSD (Daily Chart)

Gold looks to end its five-consecutive plunge after finding some support around $1770. The yellow metal rebounded to contest a 50% Fibonacci level of $1798 earlier today, but the upward momentum quickly faded. Nonetheless, the sell-off decelerated around $1770, and has the hope to slowly recover some of its losses as daily RSI breaching oversold threshold, thus will prompt some profit-takings from sellers. The immediate resistance remains to be today’s high of $1798, followed by 1825. We cannot completely rule out a further plummet as current fundamentals are acting against inflation-hedge Gold.

Resistance: 1798, 1825, 1860

Support: 1770, 1734, 1680

USDCHF (Daily Chart)

USDCHF lifted off-post hawkish Fed announcement, appreciation in the last three days completely erased losses in the past two months. Multiple key resistance lines failed to contain the bulls, and the price went straight to challenge the March support line at 0.923, which also marks the 61.8% Fibonacci level. We expect some pullbacks to take place next week towards 0.9154, if breached then 0.908 may lend some support to the continuation of an uptrend. RSI is on the verge of an overbought zone, currently printing 69.3.

Resistance: 0.923, 0.932, 0.947

Support: 0.916, 0.908, 0.9

GBPUSD (Daily Chart)

Cable officially ended its bullish trend which started from July 2020 by breaking a big ascending trendline. Price is currently finding ground at 1.38 handle, and we expect this pair to retrace upward to validate some of the key levels such as 1.389 and 1.396. The selling bias was certainly very strong this week given reopening concerns in the UK and the Fed’s surprise. However, UK remains be top listed country to initiate a full reopening, so investors need to keep a close eye on developments of the mutated virus in Britain. Any positive headline could easily boost Sterling, though it is unlikely to recapture the mentioned upward trendline.

Resistance: 1.4, 1.422, 1.437

Support: 1.382, 1.368, 1.352

20210621
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US equity market dropped as Federal Reserve is more hawkish than the…

US equity market dropped as Federal Reserve is more hawkish than the market expected

20210617
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Market Focus

US equity market dropped as Federal Reserve is more hawkish than the market expected. Though the initiation of tapering talk is widely anticipated, two interest rate hikes by the end of 2023 revealed by the dot plot had investors surprised. The Nasdaq 100 and Dow Jones Industrial Average index lost 0.34% and 0.77% respectively. All sectors closed in the red within the S&P 500 index except for Consumer Discretionary shares. The 10-year US Treasury yield surged 7.5 basis points to 1.57%.

The Federal Reserve kept interest rate unchanged, and here are Bloomberg’s key takeaways from the FOMC statement and Chair Jerome Powell’s press conference:

  • Inflation: Inflation forecasts for this year moved up, with PCE rising to 3.4% from 2.4% and core PCE to 3% from 2.2%. Next year’s forecasts for both edged up just a tenth of a percentage point to 2.1%, signaling Fed participants don’t see this year’s jumps lasting significantly into next year.
  • Dot plot: The 2023 median dot was higher, a lot higher. It showed 13 officials seeing at least one rate hike in 2023 and 11 saw two. Additionally, 7 participants are calling for a rate high as early as 2022. Only five members had rates unchanged, and the median is now 0.625%. Powell tried to calm the market by saying the main takeaway from the dot plot should be that many participants are more comfortable that the economic conditions in the Fed’s forward guidance will be met somewhat sooner than previously thought.
  • Unemployment rate: forecast at 4.5 in 2021, 3.8 in 2022, and 3.5 in 2023 from 4.5, 3.9, and 3.5 respectively. Powell said labor supply and demand are not matching up well, but that it should clear in the coming months.
  • IOER: there was a five basis point hike to 0.15%.
  • Tapering: Fed will begin meeting-by-meeting to assess progress towards the goal and talk about tapering, and emphasize tapering will be “orderly, methodical and transparent”.

Main Pairs Movement

Euro is the second worst-performing currency against the dollar on Wednesday, the first being the Swiss Franc, which plunged 0.97% and 1.11% respectively. The Fed has turned from extreme dovish to slightly hawkish, and will finally start to kick off the long-expected tapering talks in forthcoming meetings. Given ECB’s plan to bulk up monetary and fiscal spending in the second half of 2021, this officially marks the divergence between Federal Reserve and European Central Bank. The outlook for Euro is not so bright in the 2H20.

The cable also fell 0.6% amid the strengthening dollar. Today’s plunge is more likely a temporary shock to the Sterling rather than a long-term bearish trend like the Euro. Speculators are still factoring in the delay of reopening from Britain. However, we don’t think this delay will prolong into the summer given UK’s successful vaccination campaign. Once the delta variant concern is taken off the table, the UK economy will steer at full speed. An optimistic and hawkish BoE will continue to underpin the Pound, ad they may act ahead of the Federal Reserve in easing QE.

Technical Analysis

GBPUSD (Daily Chart)

Cable finally exited its consolidation phase from the downside. After trapped within a tight range between 1.42 and 1.408 for more than a month, the bears are set to seek gains in the south. Price promptly plunged toward the ascending trendline after the FOMC statement release and was finding support around 1.402 as of writing. Further on the downside, immediate horizontal resistance would be the big 1.4 round number, followed by May’s low of 1.38, and 1.367.

Resistance: 1.42, 1.437, 1.464

Support: 1.4, 1.382, 1.369

XAUUSD (Daily Chart)

XAUUSD continues to head south after penetrated the 2-month ascending trendline and DMA20 dynamic support. The yellow metal breached below 61.8% Fibonacci level of $1850, which previously defended bears’ attack. Closing below this level could open doors for sellers to capitalize on large downside space, where we might witness February’s huge plummet in gold price given the lack of inflation-hedge demand post FOMC meeting. On the downside, $1815 will be the next key level to watch for.

Resistance: 1890, 1920, 1960

Support: 1815, 1780, 1743

USDCAD (Daily Chart)

USDCAD is undergoing a U-shape recovery after the price was extremely subdued for the past two months. However, it is not completely out of the woods yet since a big downward trendline still hangs above the current price level, we need to see a solid breakout from the trendline to confirm a bullish reversal in USDCAD. In the near term, this pair looks to contest the 1.23 hurdle and failing to overcome this level could put the bears back into the driver’s seat as the persistent higher oil price always bolsters the Canadian dollar.

Resistance: 1.23, 1.25, 1.264

Support: 1.2, 1.1925, 1.18

20210617
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Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within…

Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within two hours

20210616
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Market Focus

US stocks retreated from their peaks after the retail sales missed the expectations. Tech shares closed in the red, with the Nasdaq 100 dropped 0.71%, and Dow Jones declined 0.27%. Energy shares gained traction but still could not lift the S&P 500 index as Real Estates and Tech stocks dragging behind.

Investors remained calm ahead of Fed’s policy decision. The statement is set to include updated forecasts, and communication of any taper plans well in advance. “After nearly a year of anti-climactic FOMC meetings, tomorrow’s meeting has the potential to move markets because it will likely start the process of the Fed communicating tapering of this historic accommodation,” commented Tom Essaye former Merrill Lynch trader.

China called the US “very ill indeed,” after President Joe Biden formed an anti-China ally during his Europe trip. China Foreign Ministry spokesman Zhao criticized Biden’s efforts to counter China’s global economic expansion and told reporters “The G-7 had better take its pulse and come up with a prescription.” Tension continues to mount between the developed nations and the rising giant, though no actions are taken so far, such development worries investors.

Main Pairs Movement

The market turned cautious after the US depressing retail sales figures and the better-than-expected PPI. Investors focus on news about the Delta variant of COVID and uncertainty US infrastructure as the Fed’s decision approaches. Cryptos are struggling to cling gains.

The dollar index performed well heading into the US opening but turned sour after the release of the macros, closing the day mixed. The swiss and the fiber are unchanged against its American rival, as well as the Japanese Yen, while the loonie and the sterling declined significantly.

US 10-year Treasury yields have breached 1.50% after the US retail sales release, seemingly consolidating its previous gains. The UK and Canada CPI and industrial output also stand out on the economic calendar, along with the New Zealand GDP.

Oil price edged further north. WTI traded at $72.5, and Brent traded at $74.24, both recovering to the past-pandemic price level. Gold continues to fall, trading at $1858.82 as of writing.

Cryptos seems to experience a correction. Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within two hours, and Ethereum slightly decreased toward its $2,500 support after it bounced off $2,600.

Technical Analysis

GBPUSD (Daily Chart)

GBPUSD has declined for three consecutive days, and the selling pressure seems still strong. The MACD histogram remains bearish, while the RSI indicator fell under 50. Sterling fell short for demand despite the goodish UK employment report as analysts are worried about the delay of the lockdown program forcing some struggling businesses to lay off. On the other hand, though Fed is supposed to remain monetary policy unchanged, a less dovish statement is still possible given the upbeat inflation figures, and this may further drag the pair down. The instant support for cable appears at 1.40, followed by the quarterly low, 1.367.

Resistance: 1.424, 1.438

Support: 1.40, 1.367

USDCAD (Daily Chart)

After three consecutive week’s consolidations, USDCAD finally broke through the 1.2 to 1.215 interval. Similar to other major pairs, the breakthrough of the loonie derived from the expectations of a slightly less dovish Fed after the US greater-than-expected inflation figures popped up. The MACD histogram appears bullish, while the RSI indicator has just consolidated in the buy-side territory.

However, pressure from the rising oil price is still a concern, adding that the policymakers’ attitude toward the higher inflation is still unclear, a solid rebound is still questionable. The FOMC press conference that takes place this Wednesday will provide further instructions from the officials. The best strategy is to stay positive but prudent before that.

Resistance: 1.225, 1.2367

Support: 1.215, 1.20, 1.192

AUDNZD (Daily Chart)

AUDNZD was rejected by the 1.081 resistance last Friday and slipped below 1.080 at the beginning of the week, traded 1.0794 as of writing. The Australian dollar got slightly weaker on the dovish RBA meeting minutes as the policymakers suggested no rush to taper, albeit emerging reflation.

However, due to the technicals, the bullish sentiment seems to resume a little more time, as the RSI indicator still hasn’t reached the overbought territory, and the MACD histogram remains positive. The strong 1.081 resistance level is the key. If breached, then, at least in the short term, the upside traction will still prevail.

Resistance: 1.081, 1.0945, 1.1045

Support: 1.060, 1.054, 1.042

20210616
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