17/5/2021
WHAT DOES THE HIGH INFLATION IN THE US PREDICT?
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Weekly Report: Indices, Commodities, Currencies, and Cryptos
General Comment
Another interesting week has passed for the markets since the Inflation announced in the USA (4.2% in April, on an annual basis) is a value that we had to see since the crisis of 2008. The negative results from the labor market had created expectations that the Fed would continue to print $ 120 billion a month, as it does today. However, high Inflation is upsetting the data and now the Fed is in a dilemma as to whether it should “tighten” its monetary policy or not. Bond yields have risen and the 10-year Treasury yield is currently close to 1.63%.
Stock markets, after the shock of Inflation on Wednesday, seemed to recover while the dollar, which temporarily strengthened, continued its downtrend. Gold continued to rise, oil had stabilizing trends while Bitcoin fell sharply.
This week, Europe takes the baton by announcing Inflation, while the announcement of the Fed’s practices on Wednesday for the US Monetary and Economic Policy (Federal Open Market Committee – FOMC), which acquires special interest after the latest developments, is crucial. The other notable announcements of the week are Eurozone’s GDP, the Unemployment Rate in the UK, Interest Rates in China, Retail Sales and Unemployment Rate in Australia, and PMIs in major economies.
SP500
The US SP500 Index was bearish last week, closing at 4,172 points and losses of about 1.30%. Crucial to the Index was the announcement of Inflation in the US on Wednesday, which contributed to the fall that had already begun earlier this week, while the rises on Thursday and Friday helped to reduce the loss without being able to completely reverse the picture. Some unrest has also been caused by the tension between Israel and Palestine, while earlier this week, the futures of the Index opened in the red mainly due to the disappointing results in Retail Sales in China. The SP500 remains close to the all-time highs and although the squeaks are intense, its uptrend does not seem to have changed yet. The announcement of the Fed Minutes next Wednesday is important but for now, we’ll keep on opening long positions.
DAX30
The German Index DAX30 closed slightly higher last week, at 15,451 points, gaining about 0.30%, even if the volatility was increased with weekly lows at 14,800 points. Europe has had positive economic announcements that have contributed to a positive climate that is being amplified by the acceleration of vaccinations, which raises hopes for an end to the pandemic and a faster economic recovery. The Index is very close to its highs and buyers expect that it may soon break, so we prefer long positions for one more week.
FTSE100
Corrective was the last week for the UK FTSE100 Index which closed at 7,048 points and losses of 0.85%. The volatility was high, bringing the mid-week Index even below 6,800 points but on the positive side, it is said to have recovered to 7,000 points, remaining in its uptrend that has started several months ago. The bet for a bigger rise is above 7,145 points while a return below 7,000 points will give further chances down. We’d try long positions again this week.
Gold
Gold continued to rise for another week, closing at $ 1,844 and gaining about 0.70%. It is a fact that the high Inflation announced in the US, favors the gold that has managed since the beginning of March to record a significant rise, which is also helped by the rise in bond yields. Gold in the near future will depend on the Monetary Policy pursued mainly in the US, on bond yields, and the course of the pandemic. Above $ 1,875 the chances of a further rise are increased while below $ 1,808 (last week’s low) there is evidence of a possible reversal of the trend. We prefer being long for one more week.
US Oil
We saw another bullish week for oil, with next month futures closing at $ 65.52, with gains just over 1%. High Inflation, the resumption of the Stock Markets towards the end of the week, and the reopening of the Colonial Pipeline affected the oil this week as well as the pandemic affecting oil-consuming countries such as India and Brazil. OPEC forecasts for demand remain optimistic and many buyers are initially targeting the year high near $ 68 and why not $ 70. It takes a drop below $ 63 to encourage sellers. We may try short positions this week as a correction is possible enough.
EURUSD (Euro vs US Dollar)
The previous week was slightly bearish for the EURUSD, which opened at 1.2161 and closed at 1.2145. The high Inflation in the USA, announced on Wednesday, brought the pair close to 1.2050 but on Thursday and Friday, it strengthened and reduced the losses. The news from Europe was more positive mainly in the Economic Climate in the Eurozone and Germany but this was offset by the high Inflation announced by Germany, at 2%. Important is the announcement of the Fed’s Minutes on Wednesday (FOMC) where its reaction is expected, after the recent results in Unemployment Rate and Inflation. The uptrend is favored above 1.2180 and down, the first significant support is near 1.2050 but this week we’re keen to try short positions.
GBPUSD (Great Britain Pound – US Dollar)
For the second week in a row, we saw a strong rise for the GBPUSD, opening at 1.4004 and closing at 1.4094. The weakness of the dollar combined with the strong pound that strengthened due to the improved results of the economy in the UK, in GDP, in the Trade Balance, in Industrial Production and Manufacturing, pushed the pair steadily above 1.40. The buyers’ next obvious target is the yearly high at 1.4240 but this week due to the announcement of Fed Minutes, the pair may have high volatility. We’ll open buy positions this week.
USDJPY (US Dollar – Japanese Yen)
Last week was bullish for the USDJPY, which opened at 108.56 and closed at 109.34. Bond yields have moved up and the USDJPY, which is heavily influenced by them, is starting to approach the 110 milestone price again. The yen also appeared weak, mainly due to Japanese Prime Minister Haruhiko Kuroda’s statements about weak growth in the country. The week may have high volatility, mainly towards the middle, but a continuing upward trend in bond yields could bring the exchange rate above 110 so we may open buy positions.
EURJPY (Euro – Japanese Yen)
EURJPY continues its impressive uptrend since last week it opened at 132.02 and closed at 132.80. The euro was neutral to positive but the weak yen allowed the pair to rise. With such a strong uptrend, many buyers dream of prices close to 137.50 which is high since the beginning of 2018 but there is a possibility that sellers will appear who will want to secure profits. In any case, we remain buyers on EURJPY.
EURGBP (Euro – Great Britain Pound)
The EURGBP moved lower last week, opening at 0.8682 and closing at 0.8615. The pound appeared stronger against the euro as the economic results in the UK were encouraging, compared to those of Europe which were mixed. The pair may continue to fall, if conditions remain the same, approaching the area of 0.85 so sell positions is our selection for the current week.
USDCAD (US Dollar – Canadian Dollar)
We saw another bearish week for the USDCAD, the sixth in a row, opening at 1.2121 and closing at 1.2099. The Canadian economy seems to be doing well in Manufacturing and Wholesales, but mainly through the rising price of oil, which is the country’s main export commodity. On the other hand, the US currency has been falling since the end of March, so it is possible that for the first time since 2015, the exchange rate will be driven below 1.20. We’ll try sell positions this week.
USDCHF (US Dollar – Swiss Franc)
Last week was practically neutral for the USDCHF, which opened and closed in the price area of 0.9005 – 0.9010. Volatility was not reduced and the pair was mainly affected by US Inflation and the turmoil caused by the dollar. 0.90 seems to be very strong support for the USDCHF and many buyers are showing at these price levels, which could push the pair to higher levels. Buy positions is what we’ll open this week.
AUDUSD (Australian Dollar – US Dollar)
Last week was bearish for the AUDUSD, which opened at 0.7858 and closed at 0.7781. Australia’s results were not negative, the US dollar continued to press but the pair moved down. China’s Retail Sales as reported earlier were lower than expected and so the AUDUSD continues to push down but important was the statement by Antony Blinken (US Secretary of State) that the US intends to support Australia in its dispute with China. Significant support for the exchange rate at 0.7675 while above 0.7890, there are hopes for prices close to 0.80. Believing more in USD this week, we’ll try to sell positions.
Bitcoin
Bitcoin made a strong correction last week, closing at $ 46,445 and losses of more than 20%. The big thing that affected all the cryptocurrencies was the statements of Elon Musk, who stated that his company stops accepting Bitcoin due to the high energy consumption required for its extraction and the consequences it has on the environment. Following this statement, the cryptocurrency markets (with the possible exception of Ethereum and Cardano) are in a strong corrective trend, which is strengthened by the announcement of the US Department of Justice and the US Department of the Interior that Binance, which is one of the largest cryptocurrency exchanges in the world, is under investigation. Bitcoin is falling further this week, after a new Twit by Elon Musk (he hinted on Sunday night via Twitter that the company had sold or may sell the rest of its bitcoin stake) and it is already hovering below $ 44,000 and, naturally, there is a widespread concern. We’ll stay out until things get clearer.
