28/6/2021
CENTRAL BANKS AND THE DELTA MUTATION DOMINATE THE MARKETS
General Comment
The central banks, mainly the US and the Eurozone, dominated the market trend and the volatility for another week. The Fed’s Jerome Powell told the House of Representatives that the US economy was making progress in returning to normalcy after the pandemic and that the problem of high inflation would be temporary as he said it was due to a shortage of supply caused by the lockdown and not in deeper systemic reasons. The ECB’s Christine Lagarde appeared equally optimistic about the course of the European economy but will continue its loose Monetary Policy as long as inflation in the Eurozone remains relatively low. These developments were relatively expected but what surprised the markets somewhat was the Bank of England’s decision to maintain a loose Monetary Policy.
On the other hand, everyone is concerned about the Indian delta mutation, which is proving to be more contagious and deadly than previous strains and is calling for a return to normalcy.
Most stock markets moved higher; US Indices particularly marked new all-time highs. The dollar recovered after the sharp rise, the euro strengthened amid positive macroeconomic announcements in the Eurozone and Germany, while the pound fell after the announcements by the Bank of England. Gold had a weak uptrend; oil continued its uptrend while Bitcoin fell for another week.
This week, any announcements and speeches from the central banks will play an important role, while the pandemic and delta mutation will also play a dominant role. Concerning economic announcements, the Unemployment Rate in the US on Friday (NFPs) and secondarily inflation in the Eurozone and Germany, the PMI indices, and the GDP in the UK are dominant events.
SP500
The US SP500 Index closed last week at 4,274 points and gains over 3%. The Index reached new record levels after the previous correction, as the dollar weakened and stock markets found fertile ground. There are also reassuring voices that high inflation, which could accelerate the end of loose Monetary Policy, is temporary and will eventually stabilize at much lower levels than the 5% announced in May. One issue that may affect investors’ psychology is the delta mutation, which threatens to return to normalcy. The trend of the Index is bullish but a possible take profit in combination with the aforementioned mutation can lead to corrections. We may try short positions this week.
DAX30
The German index DAX30 was bullish last week, closing at 15,598 points with gains of over 1%. The Index returned to its uptrend and is now within a shooting distance of the all-time highs of 15,780 points. The positive economic data of Germany and the Eurozone have certainly helped this rise but the course of COVID-19 and the dangerous recent mutations of the virus is a factor that can upset the balance and lead to corrective moves. We prefer short positions this week.
FTSE100
The British FTSE100 Index ended with a significant rise last week, closing at 7,080 points with gains approaching 2%. The Index managed to easily exceed the price – a milestone of 7,000 points and closed quite close to the high of about fifteen months, at 7,154 points. The Index is technically bullish and only any complications from the pandemic and its mutations can reverse this picture. There may be some concerns so short positions is what we’ll try this week.
Gold
Gold had a mild uptrend last week, closing at $ 1,781 and profits close to 1%. The rise is due to the weaker dollar (gold is denominated in dollars) but also to the repercussions of high inflation in the US, which pushes a large portion of investors into non-inflationary investment products, such as gold, to protect their capital. The week contains important announcements, with the top one of the NFPs next Friday. The downtrend in gold, which started in late May and above $ 1,900, has not changed significantly and any strengthening of the dollar can bring gold below $ 1,760, signaling a new downtrend so we’ll prefer short positions for one more week.
US Oil
Last week was strongly bullish for oil with next month’s futures closing at $ 73.98, with gains exceeding 4%. Oil hit a new yearly high and is approaching the resistance of $ 76.87, which if it breaks, we will see black gold at price levels that we have to see since the end of 2014. Investors have bet on the rapid recovery of demand through the opening of economies after the end of the pandemic and this has given a strong uptrend in oil. But there are three factors that could reverse this picture: a possible strengthening of the dollar, possible concerns about the opening of economies due to the delta mutation, and the OPEC meeting on Thursday, July 1, and possible decisions that may be taken there. In the case of corrective moves, the first support is at $ 72.30 and below, at $ 70 and we’ll follow this logic by opening short positions this week.
EURUSD (Euro vs US Dollar)
EURUSD moved higher last week, opening at 1.1856 and closing at 1.1934. The dollar weakened against the tighter Monetary Policy announced by the Fed last week as the euro strengthened, mainly due to positive PMI reports in the Eurozone, Germany, and France and the Business Climate in Germany, above expectations. US announcements, mainly in the GDP of the first quarter of 2021 and in the Durable Goods Orders, were judged rather neutral. EURUSD did not manage to exceed 1.20 and as long as it remains below these levels, traders are optimistic about approaching the key and strong resistance, close to 1.17 so we’ll try sell positions this week.
GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved slightly higher last week, opening at 1.3796 and closing at 1.3876, although the dollar was weak. The pair could rise more but from Thursday onwards, with the tone of the loose Monetary Policy from the Bank of England, the pound began to fall. An important role comes also by the delta mutation, which threatens to return to normalcy in the United Kingdom, having already increased cases and deaths. In the event of a continuation of this picture, it is possible to see the pair move towards the price range of 1.3665 and we’d like to take advantage of it by opening sell positions this week.
USDJPY (US Dollar – Japanese Yen)
Last week was bullish for the USDJPY, opening at 110.15 and closing at 110.78. The dollar may have fallen, but rising bond yields have boosted the pair (the US 10-year closed more than 1.52% and started the week at 1.44%). However, it proved for another week that the price range at 110.80 – 111 is a very strong resistance for the pair since for the second week in a row it could not consolidate above these levels, despite its uptrend. If the dollar strengthens, it may happen this week so we’re keen to open buy positions.
EURJPY (Euro – Japanese Yen)
The EURJPY was strongly bullish last week, after three consecutive falling weeks, opening at 130.67 and closing at 132.23. The euro had a good image due to the positive announcements in Europe but the mood for investor risk plays a dominant role in the pair. In the event of strong concerns about the pandemic and its mutations, the EURJPY may approach 130 again so we prefer sell positions this week.
EURGBP (Euro – Great Britain Pound)
For six consecutive weeks, the EURGBP is moving without an obvious trend, from 0.8530 to 0.8672. Last week, it opened at 0.8581 and closed at 0.8597, confirming the same scenario. The pair withstood the news for the continuation of the loose policy by the Bank of England and given the same stance by the ECB, we expect to see if a clear trend will start, which has some greater chances to be on the downside. Sell positions is what we’ll try this week.
USDCAD (US Dollar – Canadian Dollar)
USDCAD corrected last week, opening at 1.2460 and closing at 1.2293. It had been preceded by a mini-rally in recent weeks but the weakening US dollar, coupled with the explosive rise in oil prices (which usually favors the Canadian currency), caused this fall. The pair can find buyers in case of a sense of strengthening of the US currency, if there is a climate of risk reduction due to the complications of the pandemic and its mutations. In this case, it is important to break the price zone close to 1.2485 – 1.2490, which is a high of 2.5 months for the pair and we’ll go after this scenario by opening buy positions.
USDCHF (US Dollar – Swiss Franc)
USDCHF closed last week with a mild correction, with an opening price at 0.9221 and a closing price at 0.9169. The dollar that lost ground was the main reason for this movement combined with some positive economic announcements from Switzerland. The dollar may strengthen and return the pair to its uptrend, but of course, the announcements from the US labor market next Friday can turn things around. We prefer buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Last week was bullish for the AUDUSD, which opened at 0.7482, easily crossed the 0.75 milestone price, and closed at 0.7590. The pair moved upwards although the announcements of Australia (PMI indicators) were not as expected. The weakening US currency, combined with a general climate of euphoria and risk aversion, boosted the pair. This climate is doubtful whether it will be maintained as the delta mutation poses risks to the normalization of economies and if this scenario is confirmed, the US currency will gather a portion of investors again and this may lead the pair below 0.7475 (low six months), so sell positions is our preference for the current week.
Bitcoin
For the second week in a row, Bitcoin moved down to $ 34,700 and lost about 2.50%. The latest negative news about cryptocurrencies has to do with the banning of the well-known Binance exchange in the United Kingdom following a decision by the country’s capital market commission (FCA). The decision follows a series of negative developments with mining bans in China pushing Bitcoin up to $ 28,600 in the middle of the week. The fact is that Bitcoin withstood this pressure and did not stay below the strong support of $ 28,800 but instead recovered. Hopes are therefore being raised that there may be a resurgence of buyers to get away from the sideways movement of the last five weeks, after the big drop that had preceded so we may try some low-risk long positions.
