12/7/2021

CENTRAL BANKS AND THE DELTA MUTATION CONTINUE TO MARK MARKETS

General Comment
Last week, there were no significant developments as the Fed on Wednesday reiterated the same scenario, that there is economic progress and that Monetary Policy will tighten when the targets for Unemployment Rate and inflation are met. This rather disappointed the markets which may have expected action earlier and so the dollar from the middle of the week onwards, lost the upward momentum with which it had started. From the European side, in the announcements of the Minutes of the last meeting, we learned that there are thoughts of reducing the bond-buying program by the ECB but there will continue to be support for the economy. On Sunday, Christine Lagarde said in new statements that the policy may change in July with the aim of raising inflation tolerances above 2% and this probably gave a sense to the markets that Monetary Policy will not change prematurely, giving hopes for higher growth.
Bond yields have fallen sharply (the US ten-year moving from 1.44% to 1.36% and mid-week to 1.25%) mainly due to fears caused by the pandemic Delta mutation, which threatens to return to normalcy, as many countries begin to apply lockdown again.
US stocks moved higher, European stocks moved lower and the dollar fell against the end of the week. Gold strengthened further, oil corrected after several weeks and Bitcoin does not say to stand on its own two feet, moving in a small price range lately.
This week is also full of major announcements in most markets: US, Eurozone, Germany, and the UK announce June inflation, the US also announces Retail Sales, Canada and Japan Interest Rates, and Australia the Unemployment Rate. These announcements, along with the surrounding atmosphere from central banks and the Delta mutation, will largely give the market trend and volatility in the week that has just begun.

SP500
For another week (3rd in a row) the US SP500 index closed was bullish, to 4,361 points and profits of about 0.50%. The Index had started negatively but on Friday it received a boost after the news from Pfizer that it is starting experiments for an upgraded vaccine, much more effective in the Delta mutation. The pandemic is still the No. 1 threat to the global economy, but another element that has upset markets is President Biden’s decision to pursue a policy of unfair competition in some sectors of the economy. The profits of the 2nd quarter are announced this week in many companies (Citigroup, JP Morgan, Goldman Sachs, Bank of America etc.) and this will definitely play its part. The SP500 could correct mainly due to the Delta mutation with the first support being close to 4,280 units but the trend at the moment remains strongly upward. We may try short positions this week.

DAX30
The German DAX30 Index moved with consolidative trends last week, closing at 15,661 points and gains of almost 0.10%. There is a balance of the Index close to 15,600 units for about 1.5 months since there is not enough fuel to move higher and above the all-time high of 15,780 units recorded in mid-June. Europe and Germany continue to recover but fears of the Delta mutation do not allow it to turn into a price rally. There are, of course, chances for a correction and due to the high volatility of the DAX30 in recent days, this will start to stand at 15,430 points or 15,250 points. The upward trend, of course, has not yet changed but we’ll prefer short positions this week.

FTSE100
The British FTSE100 Index slightly declined last week, closing at 7,041 points with losses at around 0.30%. Much of the lockdown in the UK is being lifted this week, regardless of the many cases (30,000+) per day after much of the population has been vaccinated. Markets, however, do not share this optimism, with the FTSE100 having a slight downtrend for about a month. On the plus side, it has not closed the week below the 7,000-point milestone price and as long as that is the case, there is optimism for the 7,150 points. In case of a loss of 7,000 units, the price range of 6,870 units is important and we’re keen to try short positions this week.

Gold
For the third week in a row, gold prices rose and the week closed at $ 1,808 and gains over 1.10%. Gold had a clear uptrend throughout the week, mainly due to falling bond yields. This week, with the announcements about the inflation of economies such as the USA, the Eurozone, Germany, and the United Kingdom will be decisive because we must not forget that gold is also used as a counterweight to investors in inflationary pressures. There is also the Delta mutation which reduces the mood for risk and this favors gold and all this will compose the puzzle in the coming days. Signs of falling inflation could trigger a correction in gold to $ 1,750 and we may open short positions this week.

US Oil
Oil corrected last week, after six consecutive profitable weeks, with next month’s futures closing at $ 74.60 and losses close to 0.50%. The volatility, however, was high (weekly low at $ 70.74 and high at $ 76.95) and this is largely due to OPEC and its members who have not yet agreed on oil production for the rest of the year. There is strong evidence that China and India are increasing demand and this is boosting the market, with the uptrend of course still valid and buyers targeting prices above $ 77. In case of further correction, however, either due to possible decisions of OPEC or due to the Delta mutation, the target of the sellers in the first phase will be $ 70 and we may go after it with our short positions this week.

EURUSD (Euro vs US Dollar)
The EURUSD moved slightly higher last week, opening at 1.1861 and closing at 1.1877. This picture came on Thursday and after because until then the dollar had strengthened and had led the pair to 1.1780. Following the FOMC on Wednesday and the failure of the Fed to report a tighter Monetary Policy, the dollar began to weaken and the pair rose sharply. However, this has not changed the downtrend that has started since the end of May and as long as the price is below 1.20, it has a chance to continue. Lagarde’s recent statements about tolerance for higher inflation may push the EURUSD down with the next support at 1.1780 and 1.17 which are our main targets for our sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved higher last week, opening at 1.3823 and closing at 1.3904. The rising day of the week was Friday, with the sterling strengthening amid the euphoria of the opening of the economy on 19/7 and the dollar weakening after the FOMC minutes. A milestone for the GBPUSD is of course the price range of 1.40 where in case of a bullish breakout, an uptrend begins and forms. Given that the United Kingdom and the United States are announcing inflation in June (Wednesday and Tuesday respectively) we may see an increase in volatility and in the event of a downtrend, the price range of 1.3730 will play an important role. Sell positions is our selection this week.

USDJPY (US Dollar – Japanese Yen)
We had a strong correction after four consecutive upward weeks for the USDJPY which opened at 110.95 and closed at 110.12, with the main reasons being the large drop in bond yields and the weakness of the dollar towards the end of the week. The news from Japan was rather neutral and did not affect the pair but the Bank of Japan’s Interest Rates decisions may give the yen a more active role. The key is that the USDJPY was able to close above 110 and this gives buyers hope for the continuation of the uptrend, with the first target at 111.65 (a high of about 17 months) so buy positions is what we’ll select.

EURJPY (Euro – Japanese Yen)
The EURJPY continued to decline last week, opening at 131.60 and closing at 130.79 while in the middle of the week it had lost 130. The key arm for the pair this season is the risk mood of investors. Given the concerns about the Delta mutation, we may see the EURJPY below 130 while if things seem to be normalizing the pair could head towards 132.70. Trusting the first case more, we may open sell positions this week.

EURGBP (Euro – Great Britain Pound)
Last week was bearish for the EURGBP which opened at 0.8581 and closed at 0.8541. The sterling seems stronger than the euro at this stage because a large part of the population has been vaccinated in the UK making it possible to lift the lockdown and because the ECB continues its loose policy, allowing higher inflation. In the case of continuing the downtrend, the price zone at 0.85 is important and we think we can take advantage of it with sell positions this week.

USDCAD (US Dollar – Canadian Dollar)
USDCAD moved sharply higher last week, opening at 1.2315 and closing at 1.2444. The neutral stance of the Bank of Canada and the correction in oil prices favored the uptrend of the pair and the weakness of the US currency towards the end of the week could not prevent the upward closure. Given that oil prices cannot be reliably forecast due to disagreements among OPEC members, the decision on Interest Rates and Monetary Policy by the Bank of Canada on Wednesday and the course of the US dollar will play an important role. The situation seems confusing and most investors do not have a clear view. We’d better stay out this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF closed lower last week, with an opening price at 0.9228 and a closing price at 0.9138. The dollar lost ground over the weekend while the Swiss currency favored periods of risk-off mood, as is now the case for a large portion of investors due to the Delta mutation. If this situation continues, the pair may be driven back to 0.90 but if the dollar starts to strengthen, we may see the strong resistance at 0.9275 threatened. Buy positions is our selection this week.

AUDUSD (Australian Dollar – US Dollar)
Last week was also bearish for the AUDUSD, which opened at 0.7521 and closed at 0.7492, losing its 0.75 milestone price. The pair has not been able to take advantage of the weakness of the US currency and recover as Australia is led to a new lockdown due to the pandemic and the Delta mutation and a climate of risk aversion has been created which keeps investors away from the Australian dollar. Given the loss of 0.75 (so far at least), if the pair loses support at 0.74 then the downtrend is strong. Otherwise, reversal signs are presumed above 0.76. Sell positions is what we’ll open this week.

Bitcoin
Last week was bearish for Bitcoin, which closed at $ 34,258, and losses approaching 3%. Bitcoin is unable to recover from the recent major correction. The mining issues in China remain, while the dispute between Binance (a large cryptocurrency exchange) and the British FCA commission has caused a sensation lately. It is also a fact that Bitcoin does not fall below $ 30,000 or below the strong support zone at $ 28,600 – $ 28,800 and thus the hopes of recovery are maintained. We’d stay out from such a blurry outlook.