14/6/2021

INFLATION IS RAMPANT IN THE US, RESTRAINED OPTIMISM IN EUROPE

General Comment
The two big events that dominated the markets last week were the announcement of Inflation in the US and the decision on Interest Rates and Monetary Policy in the Eurozone. Inflation in the US for May was announced at 5% year on year, exceeding expectations of 4.7% and even more the price of April at 4.2%. This gave the markets the impression that the Fed would take action for tighter Monetary Policy, regardless of whether the economic targets (mainly Unemployment Rate) have not yet been met. Many, of course, believe that there is no cause for concern and that high Inflation is temporary and transitory, due to the reduction in production during the quarantine period, but in any case, the Fed meeting next Wednesday is very critical.
The European Central Bank kept Interest Rates unchanged at 0% and Monetary Policy unchanged, continuing its bond-buying program with unabated intensity. Christine Lagarde also said she was more optimistic about the course of the European economy, although there was a slight downward revision for growth.
Bond yields continued to decline, with the US 10-year treasury yield falling as low as 1.43%, marking the biggest weekly percentage drop in about a year.
The G7 meeting came as no surprise as leaders focused on statements that had to do mainly with the pandemic and the provision of vaccines as a form of aid to less developed countries.
Due to the expectation for a tighter Monetary Policy by the Fed, the dollar strengthened while due to the continuation of the loose policy by the ECB, the euro weakened. Most stock markets strengthened slightly and gold continued to decline. Oil strengthened again significantly while we also saw an attempt of Bitcoin to recover, especially towards the end of last week.
This week, in addition to the crucial Fed meeting on Wednesday, there are announcements of Industrial Production and Inflation in the Eurozone, Unemployment Rate, Retail Sales and Inflation in the UK, Retail Sales in the US, Interest Rates in Japan, Unemployment Rate and the RBA meeting in Australia and Ecofin.

SP500
The US SP500 closed slightly higher last week, at 4,247 points and gains at about 0.40%. The rise took place at the end of the week, after the announcement of Inflation in the US, while there were no surprises from the G7 meeting. The Index with three consecutive uptrend weeks, reached new record levels, reaching 4,248 points and breaking the previous high of 4,237 points. The Fed meeting on Wednesday is expected with particular interest because while no change in Interest Rates is expected, any decisions in Monetary Policy will affect the attitude of investors in the stock markets. Without upward resistance, the Index may “stick” to round numbers (eg 4,300 points) while the first downward support is at 4,165 points. We’ll open long positions again this week.

DAX30
Almost unchanged (with a very small increase), the German Index DAX30 closed the week at 15,715 points. The big rise on Friday bounced back from the week-long downturn as the ECB did not change Interest Rates and Monetary Policy in the Eurozone while forecasts for the European economy were optimistic. The index is close to its highs and is probably waiting for the announcements for the Eurozone and Germany this week to obtain “fuel” to move higher. Below 15,500 points, there will be correction concerns but technically we seem to be going through the fourth wave of ascent from March 2020 onwards. We’ll open long positions this week.

FTSE100
Last week was bullish for the British FTSE100 Index which closed at 7,153 points and gains at about 1%. There is optimism in the UK about the reopening of the economy but also concerns about the Indian mutation that could lead to delays and so we see a state of equilibrium. It needs a dynamic bullish breakout above 7,150 points for the Index, which seems to be stuck since the beginning of last month, to come off. If the FTSE100 loses 7,000, correction concerns will arise but we trust the bulls more so we may open long positions this week.

Gold
Second consecutive week of decline for gold, which closed at $ 1,879 and losses close to 0.80%. The high Inflation announced in the US does not seem to have strengthened the gold or the fall in bond yields since the key point was the strengthening of the dollar. So, it remained below $ 1,900 and early this week, it continues to fall to $ 1,865 due to investor expectations that the Fed will tighten its Monetary Policy to deal with inflationary pressures. The recovery scenario for gold has to do with the continuation of high Inflation, low bond yields, and unchanged Monetary Policy by the Fed. Otherwise, gold will continue its downtrend with the first support being below $ 1,845 so we’ll try short positions in the current week.

US Oil
We saw another bullish week for oil with next month’s futures closing at $ 70.77, with gains exceeding 2%. It is also important to mention that the prices exceeded the $ 70 mark, which has been a target of buyers for a long time. There are expectations for a large increase in oil demand as in developed countries the rate of vaccinations is satisfactory but also underdeveloped countries will receive more than 1 billion vaccines to help, according to the recent G7 announcement. Oil is already moving in prices that we have seen since October 2018, while a bearish breakout of $ 70, may raise concerns about its uptrend. Long positions is our selection for one more week.

EURUSD (Euro vs US Dollar)
EURUSD continued to drop for the second week in a row, opening at 1.2161 and closing at 1.2108. The dollar emerged strongly amid expectations of a tighter Monetary Policy from the Fed, while the euro lost some of its value as the ECB continued its bond-buying program and loose policy. The news in the Eurozone about Unemployment Rate and GDP was satisfactory, confirming that the ECB’s actions are in the right direction but the looseness of Monetary Policy does not allow the euro to strengthen. In the microscope, this week is mainly the dollar and any decisions or announcements of the Fed on Wednesday but a downtrend below 1.21, may test even the benchmark price of 1.20 for the exchange rate so sell positions is our selection for the current week.

GBPUSD (Great Britain Pound – US Dollar)
Slightly bearish was the last week for the GBPUSD which opened at 1.4155 and closed at 1.4112. The announcements in the UK about Industrial Production and GDP were below expectations but the strong dollar played a dominant role in the fall of the pair, based on the perception of the markets that the Fed will be forced to reverse the loose Monetary Policy to deal with inflationary pressures. Given the criticality of the Fed meeting next Wednesday, the sellers are initially aiming to break the support at 1.4070 and of course at the “round” price of 1.40 and we’re keen to follow them by opening sell positions.

USDJPY (US Dollar – Japanese Yen)
USDJPY reacted upwards (albeit anemically) last week, opening at 109.58 and closing at 109.67. Japan had some positive news for its economy, mainly in terms of GDP and Producer Price Indices, and this fact, combined with the sharp decline in bond yields, did not allow the pair to benefit from the dollar’s strengthening. It is not ruled out that this will happen this week, which, however, will have very high volatility due to the Fed but also due to the announcement of Interest Rates in Japan on Friday. Japan’s Industrial Production was announced earlier in April, at an impressive + 15.8% but we’ll insist on opening buy positions.

EURJPY (Euro – Japanese Yen)
Second bearish consecutive week for the EURJPY, opening at 133.27 and closing at 132.66. The weak euro due to the continuation of the loose Monetary Policy by the ECB and the strengthening of the yen due to the positive economic news of Japan pushed the pair lower. The support of 132.50 is critical because below it, there is an issue even for 130. We need to see prices above 133.75 to substantiate the full return to the uptrend but for the moment we prefer sell positions.

EURGBP (Euro – Great Britain Pound)
Fourth consecutive stabilizing and slightly declining week for the EURGBP that opened and closed in the price range of 0.8580. The euro appears weak but the sterling is not able to take advantage so that the pair erases a clear downtrend movement. The volatility that has decreased may rise in the coming days, with EURGBP sellers mainly targeting 0.85, and by following them, we prefer to open sell positions for this week.

USDCAD (US Dollar – Canadian Dollar)
After two weeks of stabilization, which halted the strong downtrend of the USDCAD, the pair had a net uptrend, opening at 1.2070 and closing at 1.2156. The strong US dollar gave this picture, overcoming the rise in oil prices that most often positively affect the Canadian currency. The meeting of the Bank of Canada did not hold any surprises (as expected, by the way), with a decision for unchanged Interest Rates at 0.25%. Above 1.22, the pair will gain another upward momentum but below 1.2050 it will return to its known downtrend. The strong US dollar, however, can bring the USDCAD to much higher levels so we may try to open buy positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF moved slightly lower last week, opening at 0.8988 and closing at 0.8977. The pair seems to have ignored the strengthening of the dollar while the Unemployment Rate in Switzerland being announced at 3%. In addition to the Fed on Wednesday, the Bank of Switzerland (SNB) meeting on Thursday for Interest Rates is also important and may be based on the USDCHF divergence from the other dollar pairs. Below 0.8925 strong declining trends prevail but any further strengthening of the dollar may bring the exchange rate above 0.90 again so we’re keen to try buy positions this week.

AUDUSD (Australian Dollar – US Dollar)
Last week was bearish for the AUDUSD, which opened at 0.7731 and closed at 0.7704. In addition to the strengthening of the American currency, the Australian dollar also had losses, after negative economic announcements for the country but also for China. The week is important for the pair because, in addition to the Fed, there is the announcement of the Bank of Australia (RBA) Meeting Minutes, Retail Sales in China, and Unemployment Rate in Australia. The support at 0.7645 is very important and strong and any bearish breakout may pave the way for 0.75. Sell positions is our selection for the current week.

Bitcoin
Bitcoin reacted bullishly last week, closing at $ 39,014, with gains approaching 9%. It was the strongest week for Bitcoin since the end of April, with the main reason being its adoption as the official currency by the state of El Salvador. This fact, combined with expectations from cryptocurrency advocates that other countries will follow, has overcome concerns about China banning mining in some provinces. Also important is the information that the FBI managed to recover part of the ransom in Bitcoin when hackers had attacked a large oil pipeline in the US. Bitcoin is now close to the critical price of $ 40,000 which, if exceeded, will fill investors with optimism for even higher levels but until things get clearer, we’ll stay out, at least for the current week.