26/4/2021

ALL THE EYES ON THE FED

Weekly Report: Indices, Commodities, Currencies, and Cryptos

General Comment

Last week we saw a pause in the stock market rally accompanied by a small correction in some indices. The Dollar Index continued to fall sharply for the third week in a row, ignoring even the meeting of the ECB on Thursday where it was decided that Interest Rates remain unchanged at 0% but the bond-buying program will not only not decrease but will accelerate in the next period. This should have weakened the euro, but it did not happen, a sign of the weakness of the dollar in recent weeks.

US President Joe Biden is reportedly planning a tax increase for those Americans with an annual income of more than $ 1 million, and this has affected Stock Indices. Yields on the 10-year US bond continue to decline and after hitting 1.77% at the end of March, are currently hovering at 1.57%. The German ten-year bond has risen, now to -0.25%.

On the coronavirus and vaccination fronts, the US is better off than Europe, with vaccination rates 2.5 times higher than the European Union average.

This week is dominated by the Fed meeting next Wednesday where no change in Interest Rates is expected but any tapering in the bond market (gradual reversal of the quantitative easing) will strengthen the dollar.

SP500

The US SP500 index stabilized last week with marginal losses of 0.17%, closing at 4,165 points. But volatility did not diminish significantly: Thursday was a strong downtrend day due to reports of a tax increase on high US incomes but there was a strong recovery on Friday. The SP500 companies that announced their results, for the most part, were profitable (84% reported earnings per share above estimates). The Index reached a new high of 4,186 points during the week, continuing its uptrend momentum, but of course, any profit-taking can cause corrections. The Fed meeting on US Interest Rates and Monetary Policy is expected with interest on Wednesday. We prefer opening long positions for one more week.

DAX30

The German Index DAX30 had a corrective week, closing at 15,283 points and losses of about 1.5%. It was the first week of decline after seven consecutive bullish weeks and record highs. The correction is probably normal after such a strong rise and is not to the extent that it still justifies a reversal of the trend. Below 15,085 will start to cause concerns while a return above 15,340 units will signal a positive trend for buyers. Long positions is our selection for the current week.

FTSE100

Corrective was the last week for the British FTSE100 index, which closed at 6,886 points, recording losses close to 1.5%. The Index reached the milestone price of 7,000 points last Monday, but very quickly sellers appeared that caused the fall. It takes prices ​​below 6,800 points to start causing greater correction concerns but the first 7,000-point re-approach step is above 6,920 points. We prefer long positions this week as well.

Gold

Stabilizing and neutral week for gold which closed at $ 1,776.4 with marginal losses. The beginning of the week was up but on Thursday and Friday sellers appeared who dropped prices. The main competitor of gold at this time is Bitcoin, which corrected strongly last week while bond yields also fell. Gold also could not take advantage of the falling dollar, perhaps because analysts expect the pandemic to end and investors’ willingness to take risks. Also, an increase in the tax rate on wealthy Americans could cause a drop in gold demand. $ 1,800 is a price – a milestone and significant resistance for a further rise in gold while below $ 1,750 and even further below $ 1,720, sellers are showing their teeth. We could try some low-risk short positions this week.

US Oil

Last week was bearish for oil, with next month futures closing at $ 62.01, with losses of about 1.8%. The International Energy Organization (IEA) predicts an increase in oil demand in 2021 by 4.6% due to the recovery of economies after the pandemic and OPEC is in the same optimistic tone. On the other hand, India is facing a severe pandemic problem, with 300,000 cases per day and a highly contagious strain of the virus. India is the third-largest oil importer in the world. Also, gradually the northern hemisphere enters the summer season which traditionally means an increase in travel. Oil needs to be above $ 64.35 to return to its net uptrend but as it turns and approaches $ 60, it raises expectations for sellers to drop. We’ll try short positions this week.

EURUSD (Euro vs US Dollar)

Third in a row strongly bullish week for the EURUSD that opened at 1.1973 and closed at 1.2097, easily breaking the milestone price of 1.20. The US dollar continued to weaken in the wake of falling US bond yields and the euro benefited despite monetary policy as set by the ECB, remains loose, with the bond market not only declining but also accelerating. This week is dominated by the FED meeting on Wednesday and a possible decision for reversing the quantitative easing (tapering), will strengthen the dollar. Until then, the trend remains bullish with buyers looking forward to resistance at 1.2240. Among the interesting events in Europe is Christine Lagarde’s speech on Wednesday, Germany’s unemployment, inflation and GDP, and the Eurozone inflation on Friday. We insist with buy positions for one more week.

GBPUSD (Great Britain Pound – US Dollar)

GBPUSD continued to rise for a second week in a row, opening at 1.3826 and closing at 1.3878. The pair reached 1.40 at the beginning of the week but at these prices appeared sellers who put pressure on the GBPUSD, pushing it below 1.39. The weak dollar continues to favor the pair’s uptrend, although the pound does not appear particularly strong despite the positive course of vaccinations in the United Kingdom. The Unemployment Rate fell to 4.9% from 5% in February, Retail Sales and PMIs recovered but the country’s public debt reached record highs, exceeding 27bn pounds in March. The trend is bullish and it is not ruled out that we will see a re-approach of 1.40 soon enough so we may try buy positions this week.

USDJPY (US Dollar – Japanese Yen)

Another strongly bearish week passed by for the USDJPY that opened at 108.74 and closed at 107.86. The US dollar continues to weaken while bond yields are also de-escalating. The yen, on the other hand, strengthened after the positive results announced last week for the Japanese economy, in terms of Imports, Exports, Trade Balance, Industrial Production, and Inflation. The fall of the pair from the beginning of the month is sweeping and any reversal presupposes prices above 108.40 and possibly above 109.35. We’ll try sell positions.

EURJPY (Euro – Japanese Yen)

The EURJPY closed slightly higher last week, opening at 130.25 and closing at 130.48. The pair was not seriously affected by the continuation of the Quantitative Easing in the Eurozone but it seems that the price range at 131 is strong resistance and with any further strengthening of the yen, we may see prices close to 130 this week. Under these circumstances, we may try sell positions on EURJPY this week.

EURGBP (Euro – Great Britain Pound)

Last week was bullish for the EURGBP, which opened at 0.8654 and closed at 0.8713. The rise in German bond yields has supported the euro but the pound sterling may be strong in the near future as vaccinations in the UK have allowed many businesses to open. This could cause the pair to drop and, in this case, the first and short-term target of the sellers will be the support at 0.8590. We’ll follow this scenario by opening sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

The USDCAD moved slightly lower last week, opening at 1.2504 and closing at 1.2476. The US dollar was weak but so was the Canadian currency due to the fall in oil prices, creating a certain balance. The Bank of Canada kept Interest Rates unchanged at 0.25% but the announcement of the bond–buying decrease gave a boost to the country’s currency. The FED meeting on Wednesday will play a decisive role, but in the event of a continuation of the weakness of the US dollar, sellers will chase prices close to 1.2370 and by following this case, we’ll open sell positions this week.

USDCHF (US Dollar – Swiss Franc)

Third consecutive bearish week for the USDCHF that opened at 0.9190 and closed at 0.9136, amid the continued weakness of the dollar. Switzerland’s economic performance has been satisfactory concerning imports/exports/trade balance and as long as the dollar continues to weaken, we may see prices well below 0.91. Crucial will be the FED meeting on Wednesday, which could change the balance and trend of the dollar. We’ll continue opening sell positions for one more week.

AUDUSD (Australian Dollar – US Dollar)

Last week was slightly bullish for the AUDUSD which opened at 0.7728 and closed at 0.7743. The Australian currency has not been able to take much advantage of the weakness of the US dollar and this is due, according to some analysts, to the tropical hurricane Seroja that hit Australia. Inflation is announced in Australia on Wednesday, but the dominant event is the FED meeting in the US on the same day. A continuation of the weakness of the US dollar may bring the pair well above 0.78 but if the balances change from Wednesday onwards, the AUDUSD may move below 0.77, perhaps close to 0.7585. Trusting more the second case, we’ll try sell positions this week.

Bitcoin

The second week in a row with strong correction took place for Bitcoin as it closed at $ 49,128, with losses of 12.7%. The news of the week had a big impact on cryptocurrencies: rumors of tax increases for wealthy Americans and information about the blackout in China’s Xinjiang province, where a large percentage of Bitcoin is mined, prompted many holders of Bitcoin and other cryptocurrencies to press the sell button. Early this week there is a recovery above $ 52,000 but this recovery is still far from taking away the worries. Conversely, a drop below $ 50,000 will again raise additional concerns. We’ll monitor Bitcoin closely and if we see price stabilization above $53,000 – $54,000 we may try long positions.