20/9/2021

SIGNS OF LOWER INFLATION IN THE US. THE FOCUS NOW ON THE FED MEETING MINUTES.

General Comment
Last Tuesday, US inflation was announced for August, an announcement that had gained special interest due to the high inflationary pressures that have recently appeared in the world economy. Inflation in the US, therefore, stopped its upward trend, at 5.3% but without food and energy, showed a decline to 4%, from 4.3% in July. This somewhat calmed down the markets, beginning to confirm the views of Jerome Powell (Chairman of the Fed) that the problem is temporary and that it is due to the abrupt opening of economies after the lockdown. Such a development gives the Fed room to continue its loose Monetary Policy, with the $ 120 billion-a-month bond-buying program expected to continue. This perception temporarily caused the weakness of the dollar, which, however, was able to recover almost immediately due to the very strong macroeconomic data announced, as we will see below.

Europe continues its loose Monetary Policy too, also showing that it does not view the effects of inflation as serious, but in terms of geopolitical developments, other issues now concern the world community. The AUKUS agreement creates new data and balances while the elections in Germany, with the temporary lack of government and the uncertainty they carry, are also in the eyes of the markets.

The stock markets corrected for the second week in a row, gold widened its losses while oil continued to rise. Bitcoin seems to be reacting upwards even though Lagarde statements (see Bitcoin section) have stopped its initial momentum.

The main event of the week we are already going through is the announcement of the Fed’s Minutes next Wednesday (Federal Open Market Committee – FOMC) although, after the latest developments, no significant changes are expected. Interest Rate announcements in the UK, China, and Japan are also important.

SP500

The US SP500 Index was bearish for the second week in a row, dropping to 4,407 points and having losses of about 1.20%. Pressure is mounting on the US stock market as rumors of the bankruptcy of Evergrande, a Chinese real estate giant, evoke memories of 2008 and Lehman Brothers. Also, the recent Australia-UK-US agreement (AUKUS) has brought back Cold War memories in relation to China. Of course, the decisive factor of the week is the US Monetary Policy and whether there will be developments next Wednesday with the announcement of the Fed’s Minutes. The Index has already lost 4,400 points earlier this week and below 4,350 points, we may see an acceleration of the correction. We may open short positions this week.

DAX30

Another bearish week for the German DAX30 Index, which closed at 15,490 points, with losses close to 0.25%. The climate in the stock markets is not good and this is reflected in the Index that records three consecutive falling weeks while the futures of the week that we are already going through, are moving in negative territory. The index needs to hold the 15,000 points in this wave, otherwise, the correction can become particularly intense. We prefer short positions this week.

FTSE100

The British FTSE100 Index dropped last week, closing at 6,950 points and losses that exceeded 0.30%. The Index is pushed along with all other major stock markets, losing 7,000 points which is a psychological limit. 6,735 points is the strongest support in the surrounding area and the FTSE100 must maintain these levels to increase the chances of a bullish reaction. International concerns about the Cold War climate, as well as the UK’s involvement in the AUKUS agreement, are causing market nervousness. Short positions is our selection for the current week.

Gold

Intense pressure on gold continued last week, with the closing price at $ 1,754 and losses approaching 2%. Gold has been declining since the beginning of the week, with declining US inflation dampening investors’ appetite for a counterweight to inflationary pressures. The big drop, however, came on Thursday after the announcement of US Retail Sales, which showed that the economy is recovering and created a new climate of optimism. Crucial is the FOMC next Wednesday and any statements that may relate to US Monetary Policy. A continuation of the downtrend that is formed could lead prices up to $ 1,670, which is a low of about 1.5 years so short positions is our selection this week.

US Oil

Last week was bullish on oil with futures for next month closing at $ 71.73, showing gains close to 3%. There was a big rise at the beginning of the week to $ 73.11, given the optimism that the economies are recovering after the lockdowns and that the demand will increase in the next period. From Thursday onwards, corrective trends followed, mainly due to the increase in production as most of the units returned to operation after the hurricanes that hit the east coast of the USA and the Gulf of Mexico. With investors glancing this week at the Fed on Wednesday, it remains to be seen whether the correction will continue or whether oil will try to move above $ 73.11, knocking down prices we have been seeing since August. We may try long positions this week.

EURUSD (Euro vs US Dollar)
EURUSD fell for the second week in a row, opening at 1.1815 and closing at 1.1725. The pair is under pressure due to the strong dollar, which strengthened not so much after the announcement of inflation on Tuesday but after the impressive results of Retail Sales in the US (+ 0.7% in August against expectations of -0.8%). The euro continues to be anemic based on the loose Monetary Policy of the Eurozone which seems to be prolonged, while inflation does not seem threatening in the region of 3%. The dollar may be significantly affected by the announcement of the Fed’s Minutes on Wednesday and we may see increased volatility. The support of 1.1660 is crucial because below it, conditions of the intense downtrend are created so sell positions is what we will open this week.

GBPUSD (Great Britain Pound – US Dollar)

GBPUSD moved lower last week, opening at 1.3835 and closing at 1.3729. The strong dollar from Thursday onwards, due to the impressive Retail Sales in the US, pushed the pair down. The pound, on the other hand, may have reason to strengthen as the high inflation announced in August (3.2% versus 2.9% forecasts) may force the Bank of England into a tighter Monetary Policy. However, the Retail Sales in the United Kingdom, which were announced in negative territory, again pressed the British currency and thus the GBPUSD is approaching the nine-month low price, below 1.3570. If there is no reaction from these levels, the pair enters a channel of a strong downtrend. Very important week: Fed Minutes announcement on Wednesday and Bank of England decision on Interest Rates on Thursday. We may open sell positions.

USDJPY (US Dollar – Japanese Yen)

The USDJPY moved slightly higher last week, opening at 109.88 and closing at 109.98, but failed to close above the psychological level of 110. Bond yields also moved slightly higher, while earlier this week they strengthened even more (the US 10-year bond yield is 1.36%) but the pair have not yet managed to exceed 110. This week, in addition to the FOMC in the US, the Bank of Japan announces its decision on Interest Rates and Monetary Policy and so we may see increased volatility. Oscillations and consolidations around 110 maybe should tell us to stay out until a certain movement/trend is occurred.

EURJPY (Euro – Japanese Yen)
The EURJPY continued to decline last week, opening at 129.88 and closing at 128.95. Japan is showing stable macroeconomic results despite its political crisis while the euro continues to be weak due to the loose Monetary Policy of the ECB. With these data and if the current situation continues, we may see pair values ​​below 128 so sell positions is what we intend to open this week.

EURGBP (Euro – Great Britain Pound)

The EURGBP moved with consolidative trends last week, opening at 0.8533 and closing at 0.8538. Both currencies were weak: the euro due to continued easing by the ECB and the pound due to the poor results announced in the United Kingdom. If the Bank of England leaves room for tighter Monetary Policy, we can see the pair reach 0.85 again so sell positions is our selection for the current week.

USDCAD (US Dollar – Canadian Dollar)

USDCAD moved higher last week, opening at 1.2681 and closing at 1.2770. The US currency went on the counterattack from Thursday onwards while at the same time we saw the weakening of the Canadian dollar caused by the correction of oil prices. The pair seems to be developing an uptrend and in case of any continuation of the strengthening of the US dollar, buyers are targeting the target of 1.2950, ​​which is the highest price for several months. We may go after these levels too with buy positions.

USDCHF (US Dollar – Swiss Franc)
Explosive rise for the USDCHF last week, opening at 0.9177 and closing at 0.9323. The strong dollar pushed up the pair and the risk-on mood that prevailed in investors sending them away from safe-havens, such as the Swiss currency. The target of buyers could be the price range of 0.9475 and this could be our target too for our buy positions this week.

AUDUSD (Australian Dollar – US Dollar)

Last week was bearish for the AUDUSD which opened at 0.7353 and closed at 0.7263. The strong US dollar is only one factor in this movement as fears of the collapse of the Evergrande affect the psychology of Australia, whose economy is heavily dependent on China. The country also continues to be affected by COVID-19 with a small percentage of citizens being vaccinated. The Fed in the US and the RBA in Australia announce their Minutes this week but if the situation remains as it is, support at 0.71 will be threatened so sell positions is our selection.

Bitcoin

Last week was slightly bullish for Bitcoin, which closed at $ 47,245 and gains close to 2.60%. Bitcoin, however, has been strongly correcting for the past two days, as Christine Lagarde was clear on Friday: “Cryptocurrencies are not currencies. Fool stop.” and continued “cryptos are highly speculative assets that claim their fame as currencies possibly, but they’re not. They are not.”. Bitcoin is already reaching the $ 45,000 range but we need to look at prices below $ 42,900 for the recent rise to be considered a thing of the past. Given that many investors consider cryptocurrencies as an alternative solution, there will logically be an impact from the announcement of the Fed’s practices on Wednesday. We may try some low-risk short positions this week.