9/8/2021

EMPLOYMENT HAS RISEN IN THE US. IS IT TIME FOR LESS LIQUIDITY FROM THE FED?

General Comment
The announcement of new jobs in the US (Non-Farm Payrolls – NFPs) last Friday had a result above market expectations. More specifically, the markets expected 870K new jobs and finally announced 943K. The immediate reflection that this announcement had, is that most investors now believe that the Fed will tighten its Monetary Policy sooner than expected since the main goal is to increase employment and this goal, based on the results of the NFPs, is now much closer. The very good developments in the US economy and especially in the field of Unemployment Rate and the comparison with the economies of other countries give a boost to the dollar and negatively affect the markets of commodities valued in dollars that benefit from the weak dollar.
Major stock markets strengthened, gold suffered heavy losses, as did oil. It is also worth mentioning that Bitcoin seems to be finding its way up, having the third consecutive upward week.
This week is dominated by inflation announcements primarily in the US and secondarily in Germany and China. High inflation will be interpreted by the markets as a signal for the Central Banks to pursue a tighter Monetary Policy even earlier because if inflation stabilizes at high levels, then it will be less likely to be transient, rather it will be systemic and therefore will have to be addressed.

SP500
The US SP500 Index closed last week with a rise, to 4,430 points and gains of about 0.80%. The Index had a positive course throughout the week and continued after the announcement of employment in the US, reaching new record levels of all time. Most sectors were up on Friday, except for health as the US again has a high number of COVID-19 cases. This development, however, does not seem to worry the markets much and so the SP500 is now very close to 4,500 points which is a goal that many analysts have set, several weeks ago. Suspicions of strong correction will be born below 4,365 points and even more below 4,260 points but for this week we prefer long positions.

DAX30
The German DAX30 moved higher last week, closing at 15,754 points, with gains close to 1.40%. The Index followed the trend of the main markets worldwide and is a breath away from the all-time high, at 15,800 points. Europe continues its loose Monetary Policy, so the announcement of inflation in Germany on Wednesday is expected with interest and whether this can change things. Given the uptrend of the Index, if we look for corrections, we may fall into the support of 15,425 points and 15,250 points but trusting more the bulls, we’ll try long positions for one more week.

FTSE100
The British FTSE100 Index rose last week, closing at 7,060 points and gains approaching 1.5%. There is a euphoria in the major stock markets and the FTSE100 has followed this trend, climbing over the 7,000 points that are a psychological threshold. The new pandemic cases have dropped in the United Kingdom below 30 thousand per day and this gives an optimistic tone. Any optimism will rise sharply if we see prices above 7,150 points, considering that we have more than 1.5 years to see something like this. In case of corrections, the first concerns will be below 7,000 points and these concerns will intensify below 6,910 points but we’re keen to open long positions this week.

Gold
Gold closed last week with a big drop, at $ 1,764, and losses approaching 3%. Gold has been declining all week, but the biggest losses occurred on Friday after the NFPs as the dollar strengthened and the markets believe that there may be an early tapering that will drop inflation and therefore hit gold prices which is the more traditional insurance solution against inflationary pressures. In addition, the rise in bond yields was another factor in the downtrend in gold. Earlier this week, there was a sharp drop to $ 1,673 (just on the March major support) as a continuation of Friday’s trend but prices quickly returned above $ 1,700, especially after the announcement of inflation in China, at 1%, against expectations for 0.8%. The trend remains bearish but high volatility makes trading in gold very risky so we may try some low-risk short positions this week.

US Oil
Last week was strongly bearish for oil with next month’s futures closing at $ 67.86 and losses close to 8%. The oil easily lost the $ 70 “cushion” due to the strengthening dollar (let’s not forget that oil is valued in US dollars) and due to concerns raised by rising pandemic cases, mainly in the US, China, and Japan, and new restrictions that are beginning to be imposed. These data develop fears regarding the recovery of demand and cause a correction in oil prices that continues early this week. The most critical price to continue the correction is $ 65 while in case of a bullish reaction a clear upward break of $ 70 is needed to resolve the concerns. We may try short positions, targeting the price area of $ 65.

EURUSD (Euro vs US Dollar)
EURUSD was strongly bearish last week, opening at 1.1864 and closing at 1.1760. The dollar strengthened slightly throughout the week, but the downtrend accelerated after the announcement of the NFPs and market expectations for faster tapering. Europe and Germany had positive economic results in terms of PMIs, Retail Sales, and Factory Orders but the strength of the dollar dragged the pair down. Moreover, the ECB has stated its intention for a loose Monetary Policy for a long time to come, while inflation in the Eurozone remains relatively low. The announcement of inflation in the US next Wednesday is the big news that the markets expect and in case the dollar continues to strengthen, the support of 1.17, which is a low price of about nine months, will be threatened so we will open sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved slightly lower last week, opening at 1.3894 and closing at 1.3873. The Bank of England left bank Interest Rates unchanged at 0.1% but there was a rift in the continuation of the loose Monetary Policy, as Michael Saunders, an external member of the Monetary Policy, voted in favor of early tapering. This resulted just a slight fall in the pair if one takes into account the strengthening of the dollar. The pound can approach 1.40 again but in case of a new strengthening of the dollar, the exchange rate may be driven to 1.3730. The first case seems more possible so we’re keen to try buy positions.

USDJPY (US Dollar – Japanese Yen)
Last week was bullish for the USDJPY, opening at 109.62 and closing at 110.22. The pair had the last three days of the week very bullish, aided by the strong dollar but also by the rise in bond yields (the US 10-year bond yields again exceeded 1.30%). The yen is further weakening after the negative developments of the pandemic in Japan, with the quarantine returning to many areas. Given that the USDJPY is back above 110, it may be heading towards resistance at 110.70 if it wants to look higher so we will open buy positions this week.

EURJPY (Euro – Japanese Yen)
The EURJPY moved down last week (opening at 130.16 and closing at 129.62), returning after a two-week break, to the downtrend that has begun since the end of May. The pair also lost 130 and thus any continuation of the downtrend may lead to the support of 128.60. The yen weakened further after a large number of cases returned to Japan. Sell positions is our selection for the current week.

EURGBP (Euro – Great Britain Pound)
The EURGBP, which opened at 0.8531 and closed at 0.8475, fell sharply last week. The pair broke out at 0.85 for the first time since last April and stopped just above the strong support of 0.8470. If this support is lost, we may see much lower prices, even below 0.83, as the pound strengthens following market expectations for tighter Monetary Policy by the Bank of England. We may try sell positions for one more week.

USDCAD (US Dollar – Canadian Dollar)
USDCAD had a bullish reaction after two bearish weeks, opening at 1.2475 and closing at 1.2547. The pair managed to return above the milestone price of 1.25 with the help of the strong US currency and the sharp fall in oil prices. Oil as Canada’s main export is a barometer of the country’s currency. In addition, employment in Canada was disappointing, with Unemployment Rate reported for July at 7.5% against lower expectations and thus the loose Monetary Policy by the Bank of Canada may be extended. If the pair moves above 1.2590, the chances of reversing the uptrend increase so buy positions is what we’ll open this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF ended the week with an explosive rise. The pair opened at 0.9052 and closed at 0.9150, after the announcement of the NFPs in the US on Friday. Inflation in Switzerland was announced at 0.7% in July, just as markets expected, so the country’s currency was a neutral factor. A further strengthening of the dollar could bring USDCHF towards the price range of 0.9275 so we may try buy positions during the current week.

AUDUSD (Australian Dollar – US Dollar)
Last week was slightly bullish for the AUDUSD, which opened at 0.7333 and closed at 0.7353, even though the US currency strengthened significantly. There is an expectation from the markets that the Reserve Bank of Australia will decide to reduce the bond market program, at its next meeting in early September and this gave a boost to the Australian dollar. If the US currency strengthens further, a drop below 0.7290 will restore the strong downtrend of the pair that began in early May and the price range of 0.7850 so sell positions is our selection for the current week.

Bitcoin
It was the third strongly bullish consecutive week for Bitcoin, which comfortably exceeded $ 40,000, closing at $ 43,821 and profits that marginally surpassed 10%. After the ban on mining in China, it seems that miners have found other countries to do it, mainly in the US and Kazakhstan, and this has normalized things, creating optimistic trends. In addition, there are strong rumors that the US may become more friendly to cryptocurrencies and that many US companies will begin to accept them as a transactional & exchange medium. If there is a clear bullish breakout above $ 45,500, the $ 50,000 approach scenario will return strongly but things are still unstable, and volatility is very high. We may try low risk long positions this week.