22/3/2021

THE REACTION OF THE CENTRAL BANKS TO THE HIGHER YIELDS

Weekly Report: Indices, Commodities, Currencies and Cryptos

General Comment

Another week passed by where the bond yields moved higher. The US 10-year bond yield climbed up to 1.75% during the last week and it currently moving close to 1.68%. The Interest Rates decision and the FED session brought out the most probable policy for the next years that rates will remain unchanged. Also, despite the big progress in the US economy, there’s still a long way to go in order to reach the pre-COVID-10 levels. This had as a result the sharp drop of USD on Wednesday as the markets anticipated the statements as a long term dovish monetary policy but it quickly recovered on Thursday and Friday with the rise of the bond yields. On the other hand, ECB is trying to deal with the high bond yields, in order to protect the economic growth, by extending the bond-buying program. Both Central Banks (FED and ECB) targeted to calm down the markets but they managed to do it only for a short period of time.

The major Indices performed a mild correction that came along with a relatively lower volatility, gold had another profitable week, oil dropped more and Bitcoin had a correction below $60,000.

The current week is dominated by the speeches of Jerome Powell (Monday and Tuesday) and the speeches of Andrew Bailey – Bank of England (Tuesday and Thursday) while there’s a lot of interest in the European Council Meeting at the end of the week.

SP500

Corrective was the last week for SP500, which closed at 3,896 points and losses that surpassed 1%. The last two working days of the last week caused this movement, after the rise of the bond yields which climbed from 1.64% to 1.75%. With more attractive yields, serious amounts of capital are transferred from stocks to bonds and in the same time, there is a significant change on the basis that the desired stock performances are defined. Below the last week’s low price, at 3,874 points and even more, below the support of 3,860 points, concerns become bigger but a possible recovery above 3,935 μονάδες, may bring new signs of optimism to the investors. By believing that there’s more room for correction, we’ll try short positions this week.

DAX30

It was a bullish week for DAX30, which outperformed the most of the other major Indices. More specifically, DAX30 closed at 14,640 points, performing profits more than 0.5%, confirming our last week’s scenario that money will transfer to cheaper and not overbought markets such as the German stocks. DAX30 applied a new all–time high during the last week at 14,813 points and it takes a drop below 14,200 points in order to develop concerns for a bigger correction. Keeping in mind that it may a corrective week in general, we’ll open short positions.

FTSE100

Bearish was the last week for FTSE100 as it closed at 6,662 points, almost 1.9% lower. UK has serious issues regarding the vaccinations after the EU decision to stop the vaccines exports and this postpones the vaccinations in the country, maybe for 2 months. Below 6,000 points investors will become more nervous and in order to have an uptrend recovery for FTSE100, it takes to exceed the price area of 6,750 points. Short positions is our option for this week.

Gold

Gold had a second bullish week in a row, by closing at $1,744, having profits a bit above 1%. Gold applied profits mostly on Wednesday with the USD weakness and the FED session while at the rest of the days we saw consolidations and low volatility. Also, a temporary corrective trend of the cryptocurrencies gave a boost to gold because there’s a direct competition between gold and Bitcoin for the safest haven asset against inflation. Above $1,755 we may see a clearer uptrend but below $1,715, most likely gold will return to its downtrend that started in the beginning of 2021 along with the USD strength. We’ll open short positions in gold this week.

US Oil

Big drop for oil prices took place during the last week since next month’s futures closed at $61.48, with weekly losses above 6%. The biggest portion of this drop happened on Thursday after USD strengthening. We also saw a marginal rise of the oil inventories in USA that is combined with certain concerns in Europe as there are voices claiming that Europe may lose a second summer season for the aviation and the tourism industries. The milestone price of $60 had a break-out on Wednesday and even if it we saw a quick return above of it, a new bearish break-out may define a clear downtrend for oil prices. We prefer short positions for one more week.

EURUSD (Euro vs US Dollar)

Mildly bearish was the last week for EURUSD which closed at 1.1904 (weekly open at 1.1944). The temporary rise on Wednesday after USD weakness could not last very much as the higher bond yields supported USD again. This week is dominated by the speeches of Jerome Powell while there is some interest on the US GDP announcement and the European Council Meeting in the end of the week. If USD keeps on strengthening, we may see EURUSD moving close to 1.18 and trusting this case, we’ll open sell positions this week. There are some hopes for a bullish recovery but only if we see prices close to 1.20 again.

GBPUSD (Great Britain Pound – US Dollar)

It was the second bearish week in a row for GBPUSD, which opened at 1.3927 and closed at 1.3866. UK is facing problems with the vaccinations while very important was the announcement that the monthly Public Sector deficit in February was above 18M pounds which is an all-time record. Also, Boris Johnson may extend the lockdown program for a few more months so it won’t surprise us to see the pair even lower, trying the major support at 1.3780, if of course USD remains strong so sell positions is what we’ll open this week. A possible quick recovery above 1.39, gives more credits to the 1.40 scenario though.

USDJPY (US Dollar – Japanese Yen)

Mildly corrective was the last week for USDJPY (after 4 heavily bullish weeks), as it opened at 108.97 and closed at 108.89. During the week we saw prices clearly above 109 but the FED session caused a USD drop while the following days could give a bullish recovery even if the bond yields performed impressively. This movement was also helped by the upcoming monetary policy from the Bank of Japan after cancelling the program of purchasing ETFs of value more than 6 trillion JPYs. Most likely, we expect a stronger JPY which will fight with the high bond yields and this may calm down the expectations of the markets that USDJPY will reach the milestone price of 110 pretty soon. Having this in mind, we’ll stay out this week, waiting for further information.

EURJPY (Euro – Japanese Yen)

It was a bearish week for EURJPY, as it opened at 130.17 and closed at 129.31. JPY is getting stronger and the pair opened this week with a big gap, compared to last week’s close price. As long as the pair is moving away from 130, the bearish scenario becomes more probable and we may see a test on the supports at 128.75 and 128.20. We’ll open sell positions in the current week.

EURGBP (Euro – Great Britain Pound)

A consolidative week passed by for EURGBP. The pair opened and close around the price area of 0.8580. EUR is pretty weak lately and even if GBP has a relative weakness as well, the scenario for the pair of reaching the price of 0.85 seems possible enough so we prefer sell positions for one more week. Above 0.8640 we may start seeing signs of a trend reversal.

USDCAD (US Dollar – Canadian Dollar)

Mildly bullish movement took place last week for USDCAD with a weekly open at 1.2472 and a weekly close at 1.2501. The strong USD (due to the higher bond yields) and the oil price correction intercepted the rise of the CAD and the pair’s downtrend. Despite all these, the basic perception of many analysts remains for prices close to 1.20 withing the current year and this case will become more prospective after a possible bearish breakout of 1.2365. Above 1.2550 we may see a heavier bullish recovery but we prefer sell positions this week.

USDCHF (US Dollar – Swiss Franc)

Consolidative was the movement of USDCHF for a second week in a row, with a weekly open/close price around 0.9290. There is a balance between USD and CHF lately with a relative reduce of the pair’s volatility. We need to see prices above 0.9375 in order to start defining an uptrend and prices below 0.9210 for the corrective scenario to become more attractive. By trusting more, the first case, we will open buy positions this week.

AUDUSD (Australian Dollar – US Dollar)

It was a consolidative & low volatility week for AUDUSD, as the pair opened and closed around the price area of 0.7740 – 0.7750. China announced earlier that keeps the Interest Rates unchanged at 3.85% but Australia had a serious decline at the Retail Sales in February of 1.1 % even if the expectation was positive. If USD continues its strength the pair may drop further to the support of 0.7620 so sell positions is our selection for the current week.

Bitcoin

Bitcoin performed a correction during the last week after two heavily bullish weeks in a row. More specifically, Bitcoin closed at $57,382 with losses close to 2.8%. There were some rumours that India will prohibit not only the mining and the transferring of cryptos but it will penalize the ownership as well. On the other hand, cryptos are invading more and more into the economic system and Morgan Stanley becomes the first big investment bank that offers to its investors access to Bitcoin investments, through three Bitcoin funds. Despite the current correction, it is a matter of time for Bitcoin to recover the price of $60,000 and to look even higher so that is why we’d prefer long positions this week.