19/7/2021

US AND EUROPE TOLERANT ON INFLATION, TEMPORARILY?

General Comment
The announcement of inflation in the US for June, as well as the uproar it caused, was perhaps the most central issue affecting the markets for the past week. 5.4% is an unusual value but the pandemic season is also unusual. The Fed with its loose Monetary Policy supports the economy, with the obvious goal of returning to growth and fighting unemployment, which is why Jerome Powell, testifying in Congress in the coming days, reiterated that he considers inflation to be a temporary problem and that Monetary Policy will not tighten prematurely.
However, China, which is the country that announced the growth of the second quarter of 2021, did not have such encouraging results and this fact in combination with the delta mutation in question has created a feeling of investment aversion to risk in many investors.
The main stock markets moved lower, the dollar strengthened significantly while the other currencies had losses and/or fluctuations. Bond yields fell another week. Gold continued to rise, oil fell while Bitcoin seems to be unable to recover, recording another negative week.
The most central and important event of the week we are already going through is the ECB meeting on Thursday on Interest Rates and Monetary Policy in the Eurozone where investors are waiting for any new information. Also important are the announcements of the PMIs in Germany / Eurozone / United Kingdom and the USA as well as the Minutes of the Meetings of the central banks of China, Australia, and Japan.

SP500
The US SP500 Index closed with correction last week, at 4,318 points and losses approaching 1%. The picture was worse in the mid-cap companies, where Russell2000 fell more than 5% weekly. The announcement of US inflation and the subsequent Powell statements have raised growth concerns. The Delta mutation or other possible future pandemic mutations have also developed risk aversion moods for investors, and this correction is emerging, with the tech industry being perhaps the hardest hit. Any losses of the Index below 4,275 points and even more below 4,255 will take back the gains of the previous weeks and will cultivate a new wave of concern. It needs a reset of over 4,350 points for this correction to be a thing of the past. We prefer short positions for the current week.

DAX30
The German DAX30 Index was bearish last week, closing at 15,484 points and losses of more than 1%. The Index followed the path of the key markets since in Europe the climate that is cultivated is full of concerns, without a particular disposition for investment risk to most investors. The DAX30 (futures) opened earlier this week in negative territory, showing that the same climate continues (at least for the time being) and below 15,250 points there may be further deterioration. The worsening pandemic may bring EU structural problems back to the forefront and similar concerns in European markets so short positions are our choice this week.

FTSE100
The British FTSE100 Index closed with losses of about 1.80% last week, at 6,915 points. The number of new cases in the UK has increased dramatically, with almost 50,000 new cases a day and so any concerns are perfectly reasonable but as of today the lockdown in the country is lifted, with all that entails. It is also important that the Index lost 7,000 points which is a psychological limit of the market. Given that the market has opened negatively this week, the next support of the FTSE100 is close to 6,800 units which makes us think of opening short positions this week.

Gold
Gold continued to rise for another week (4th in a row), closing at $ 1,812, with gains just over 0.20%. There was a sharp drop on Friday, from the weekly highs of $ 1,834, however, gold kept its positive sign for the week. The aversion to risk that prevails lately, strengthens gold, which is also reinforced by the sharp de-escalation of bond yields (the US 10-year fell to 1.28%). A somewhat unusual fact is of course the parallel strengthening of gold and the dollar, but the period we are going through, alone cannot be described as normal. It remains to be seen whether Friday’s correction will continue and whether we will see a further drop below $ 1,800 or below the support of $ 1,790. A return above $ 1,835, however, will spark hopes for a new uptrend. We prefer short positions.

US Oil
Oil fell sharply last week, with next month’s futures closing at $ 71.17 and losses close to 4.60%. At the end of the week, at the OPEC meeting in Vienna, an agreement was finally reached between the members to increase production from August onwards and for comprehensive management until 2022. The dispute was mainly between Saudi Arabia and the United Arab Emirates and this uncertainty had caused nervousness and a wait-and-see attitude for many investors, resulting in falling prices. During a pandemic, OPEC had reduced production by a record 10 million barrels per day in order not to collapse prices, but with the hope of a recovery in demand, this will be gradually lifted. The increase in production almost always causes prices to fall and oil is already falling below $ 71, with the big bet, of course, being whether it will be able to hold $ 70 so short positions is our reasonable choice for this week.

EURUSD (Euro vs US Dollar)
The EURUSD moved lower last week, opening at 1.1877 and closing at 1.1805. The dollar strengthened significantly after the sequence of high inflation announcements and Powell statements in Congress, while because in the Eurozone things look clearer, the euro is a small factor of influence. Thursday’s ECB meeting on Interest Rates and Monetary Policy may be something that will change things, even if no surprises are expected. The pair was kept above the support of 1.18 but in case it is lost, there is a lower stronger support at 1.17. As mentioned above, the worsening of the pandemic may negatively affect the euro, due to the structural differences in the EU that will come out to light. We prefer to sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)
GBPUSD was bearish last week, opening at 1.3890 and closing at 1.37764. The strengthening of the dollar was the most decisive factor for this move, but the pound also appeared weak, due to the large number of cases of COVID-19, even though the United Kingdom is returning to normal today (19/7). Another important factor in the weakening of sterling is the recent statements of Bank of England executives that high inflation will not lead to an early increase in Interest Rates. The critical price zones are close to 1.3730 and 1.3670 because below them there is room for a much bigger fall so we may try to sell positions.

USDJPY (US Dollar – Japanese Yen)
Last week was rather consolidative for the USDJPY, which opened and closed in the price range just above 110. Two opposing forces led to this: the strengthening of the dollar and the fall in bond yields that are the barometer of the pair. Monetary Policy, as announced by the Bank of Japan, has not changed, but there has been a revision of the growth forecast to the downside. The week started with a loss of 110 for the pair, but if the dollar continues to strengthen, it will probably recover and may recover with more momentum if it manages to exceed 110.70. Buy positions is our selection for the current week.

EURJPY (Euro – Japanese Yen)
It was the third consecutive week of sharp decline for the EURJPY opened at 130.73 and closed at 129.95. The risk aversion mood and the de-escalation of bond yields, act as a catalyst in the fall of the pair. The loss of 130 also sets a new downtrend but the ECB meeting on Thursday makes things unpredictable this week. A downtrend below 129.60, however, favors a further fall so we may try sell positions.

EURGBP (Euro – Great Britain Pound)
The EURGBP reacted upwards last week, opening at 0.8545 and closing at 0.8575. The pair reached the milestone price at 0.85 and then moved higher, mainly due to the weakness of the pound caused by the COVID-19 mutations and the continuation of the loose policy by the Bank of England. However, the character of the downtrend that has started since April has not yet changed and so a return to 0.85 is not ruled out. Sell positions is what we’ll open this week.

USDCAD (US Dollar – Canadian Dollar)
USDCAD moved strongly up last week, opening at 1.2449 and closing at 1.2612. The US dollar strengthened considerably for the reasons we have seen above, in contrast to the Canadian currency which is often weakened by the de-escalation of oil prices, which is Canada’s most important export commodity. Following the recent OPEC agreement to increase production, oil prices may be under further pressure and so the pair may be driven higher but the price range around 1.2650 needs some attention because it is a strong resistance. Buy positions is our selection for the current week.

USDCHF (US Dollar – Swiss Franc)
Last week was bullish for the USDCHF with an opening at 0.9138 and a closing at 0.9195. The favorable climate that has been created for the dollar, pushes the pair upwards and if there are splits above 0.92 and 0.9275, a strong uptrend is formed that can lead USDCHF up to 0.95. We prefer to buy positions this week.

AUDUSD (Australian Dollar – US Dollar)
Another bearish week passed by for the AUDUSD, with an opening price at 0.7477 and a closing price at 0.7396. The US dollar was strong but the Australian currency also has reasons to be weak. Australia is leading to new local lockdowns due to the Delta mutation as the percentage of vaccinated in the country is very small. In addition, China’s GDP was not encouraging (there is a strong correlation between the AUD and the Chinese economy). If this situation continues, we may experience a strong downtrend soon so sell positions is an obvious choice for us this week.

Bitcoin
Unable to react, Bitcoin went through another downtrend, closing at $ 31,776 and losing more than 7%. The repercussions of mining bans in China remain, even though many miners are trying to find alternatives. Also important are the issues raised around the regulatory framework for cryptocurrencies and what restrictions may be imposed by regulators. There is some positive news as well, such as e.g., the adoption of Bitcoin by more and more companies and organizations but more fuel is needed for an upward reaction. The large support zone at $ 28,600 – $ 28,000 remains the most critical level for the further course or fall of Bitcoin. We may try some low-risk short positions this week.