Three Main Themes of Investing for the New Year of 2021
The past year of 2020 was very unusual to say the least & proved that predictions are just predictions and as Yogi Berra said “It’s hard to make predictions, especially about the future”. Having said that, starting the new year, we believe there will be 3 main themes which will affect greatly the markets, besides of course unpredictable events like the recent ones.
The first theme is the weakness of the US dollar, which probably will continue in 2021 and help all the positive mood in markets and particularly the small caps & emerging markets. Nobody really wants a weak dollar; US is running big deficits and the FED still likes negative real rates and the dollar has been overpriced for a long time.
The second theme is about the policies of the new US administration, especially in two fronts. In the internal front, everybody is waiting for some kind of a “New Deal” to come and give rise to infrastructure spending, especially in Green Energy technologies. Even with a republican resistance to these policies, there will be a greater government intervention in order to mitigate the Covid-19 consequences in many US households and that paves a way for new bubbles. In the second front, everything is about the new US foreign policy and its relation with China & the new “cold war”. A predictable & experienced in foreign policy Biden administration is much better for the markets at least theoretically. Thus, short term there will be most possibly positive news for the markets, although long term the “Thucydides trap” is there.
The third theme is the possible return of inflation, something that with such an excessive liquidity in the markets was supposed to have already happened in economies. The non-visible inflation is here, but it is still contained in the financial system & has already inflated the prices of financial assets. Most possibly this liquidity will eventually be directed to the real economy and some inflation will come back. This upsetting fact for the equities & bonds markets trend plus the expansionary US & China fiscal policies will favor greatly commodities like copper, iron, aluminum, etc., a trend that already has been apparent in commodities markets.
Every investor must watch closely the above themes and act accordingly & adjust in this period of high volatility & uncertainty. So, stay tuned in our weekly newsletter.
As per the las year, 2020 marked by the COVID-19 pandemic with mixed emotions as the number of the cases and new death are in all–time highs but on the other hand the vaccinations have begun and there are serious expectations that we’ll return to normality into the current year. Other remarkable events of the last year, include the Brexit deal (that took place just a few day ago), the low Interest Rates and fiscal policy from the major Central Banks and the election of Joe Biden as a president of the United States.
USD is moving to a 3 years low price, having lost more than 13% from last year’s high, without showing recovery signs at least for the moment. The policy of FED keeps its dovish profile (low Interest Rates) and factors that are affected from the weak USD is the budget and the trade. Weak USD makes USD goods more competitive in the global environment and helps a lot the emerging markets which borrow in USD.
Stock markets reached high record levels into 2020 and it was helped, besides the optimism for the pandemic end, the weak USD since it is a barometer for the global markets: weak USD means a risk-on mood so this means a positive mood for stocks.
Gold surpassed during the year the price of $2,000 for the very first time while the oil, after the shock of the spring where we saw the remarkable event of negative futures prices, has recovered to a great degree. Finally, we need to underline the great rally of Bitcoin and of the most cryptos which became heavier by the end of the year.
This week, most likely, we’ll see the return of the markets to the ordinary volumes & volatility and contains important announcements and events such the Federal Open Market Committee minutes and the NFPs along with the Unemployment Rate in USA.
EURUSD (Euro vs US Dollar)
2020 was a year of high volatility for EURUSD, which closed almost 9% higher, compared with the yearly open price. This rise took place from last May and on as early last spring the pair had approached the price area of 1.06. The last week of the year was mildly bullish as EURUSD opened at 1.2185 and closed at 1.2214 since USD kept on dropping. Markets slowly return to the ordinary volumes after the low volatility of the holidays season but it seems that the uptrend of the pair is still here. We also expect higher volatility due to FOMC and NFPs in USA and prices above 1.23 are able to lead the pair to much higher levels. On the contrary, if these announcements make USD stronger, we need to see prices at the 1.20 area so we can talk for an uptrend reversal. We prefer buy positions this week.
GBPUSD (Great Britain Pound – US Dollar)
More than 3% higher closed the last year for GBPUSD, a year which was very important for UK since it was the last one into the EU. The road to the Brexit deal was not easy though, it was long-term, and painful but the pair recovered from its yearly lows of 1.14. The last week of the year was a bullish one as the pair opened at 1.3545 and closed at 1.3663, echoing the Brexit deal. The uptrend that we witness since the last autumn opens the appetite for approaching the 1.40 area because this fact is helped by the weak USD as well. Prices below 1.3480 may cause concerns to the pair’s buyers but we’ll try buy positions for one more week.
USDJPY (US Dollar – Japanese Yen)
With losses that exceeded 5% USDJPY left last year, since it followed the road that the weak USD as well. The 10-years US treasury yield which is a strong influencing factor for the pair, dropped from 1.92%, to 0.92%. The last week of the year was bearish, with a weekly open at 103.49 and a weekly close at 103.21. The pair has approached very much the lows of March at 101.18 since from last June it is in a free fall mode. The announcements of Interest Rates and the Unemployment Rate in USA may cause higher volatility but the trend reversal requires prices above 104.70 and maybe above 105.70. We prefer sell positions for one more week.
EURJPY (Euro – Japanese Yen)
Last year was bullish for EURJPY since it raised about 3.5%, especially from last May and on, where markets started to avoid safe haven assets such as JPY. The last week of the year was slightly bearish as the pair opened at 126.22 and closed at 126.03. Last weeks’ volatility was low but now it is expected to return to its ordinary scale and given the uptrend that dominates the pair during the last months, we expect EURJPY to try the major resistance of 127 again. We’ll try buy positions this week too.
EURGBP (Euro – Great Britain Pound)
It was a bullish year for EURGBP, which closed 5.7% higher, compared with the yearly open price. The Brexit deal limited the bulls since during the year, the price climbed to the 0.95 area. The last week of the year was bearish (in between the GBP strength caused by the Brexit deal) by opening at 0.8992 and closing at 0.8937. The positive mood for GBP (the pair persists below 0.90), create expectations for a further drop and the first important support for the road to 0.85 is the price area of 0.8860. We’ll try sell positions on EURGBP this week.
USDCAD (US Dollar – Canadian Dollar)
Bearish was the last year for USDCAD, which ended the year about 2% lower but we need to have in mind that from the yearly highs (last March in between the pandemic storm), the pair lost 13.3%! The oil prices recovery after last spring, in combination with the weak USD, helped the development of this downtrend. As per the last week, it was a clearly bearish week which opened at 1.2844 and closed at 1.2716. The pair is moving very close to the important support of 1.2688 and a possible bearish breakout may open the road for 1.25. For one more week, we’ll open sell positions.
USDCHF (US Dollar – Swiss Franc)
2020 was a clearly bearish year for USDCHF as it lost 8.4% of its value, although during the last years it has a remarkable stability. Last year’s week was bearish too and the pair opened at 0.8888 and closed at 0.8848. USDCHF is moving to 5 years low prices without an important recovery of USD, we may see it close to 0.85. Our weekly selection is to open sell positions.
AUDUSD (Australian Dollar – US Dollar)
A clearly bullish year passed by for AUSUSD with profits that touched 10%. Of course, this raise is importantly higher and it touches 40%, comparing with last March’s low price. The weak USD and the better COVID-19 outlook of both Australia and China during the last period, exploded AUDUSD. The last week was the 7th week in a row bullish week, as it opened at 0.76 and closed at 0.7694. The next major resistance ahead of a possible uptrend continuation for the pair to its road to 0.80, is the price area of 0.7830. We’ll insist opening buy positions for one more week.
Last year closed for SP500 with important profits that surpassed 15%. After the pandemic shock during last March and the yearly low price close to 2,170 points, SP500 recovered impressively and it reached the pre-COVID-19 high price, during the last August. The positive mood for the pandemic end, the QE of FED which targets to aid the US economy and the low Interest Rates policy, have brought the Index to new record price levels. The last week of the year was profitable too as the Index closed above 3,746 points with profits like 1.4%. The beginning of the new year may cause some corrections but the dominating scenario is the uptrend continuation, even if many stocks (especially the most important ones) seem to be a bit “overextended”. We’ll follow the main trend by opening long positions for one more week.
Slightly profitable was the year of 2020 for DAX30, which had a yearly performance of 3.3% but we need to remark that the profit since last March’s lows at 7,943 is more than 70%! Last week was slightly bullish too as the Index closed at 13,650 points, 0.44% higher. Last year’s high price has already been broken-out so there is a high probability for an uptrend continuation and we’ll try long positions this week.
Bearish was the year of 2020 for FTSE100 which performed losses that approached 15%. Of course, since last March’s low, there is an important recovery. The week that closed the year was bearish as the Index closed at 6,407 points with losses that touched 0.8%. There is an atmosphere of optimism for FTSE100 after the Brexit deal which may implement an uptrend scenario above 6,630 points. We’ll try long positions this week.
Gold performed important profits last year that touched 25%, as it surpassed $2,000 during the last August, for the very first time. The appetite for safety amongst the investors and the QEs on most of the major currencies (mostly on USD) due to fiscal packages from the Central Banks, helped gold a lot. Last year closed with another bullish week which closed at $1,901, performing profits like 1%. The current week has opened importantly higher and it seems that gold is taking back its main uptrend, looking at $2,000 again. The next important resistance exists close to $1,965 but in case of an opposite movement, the next major support is at the price area of $1,860. Our selection is to open long positions for one more week.
Last year was a year of very high volatility for oil, as it recovered from unusually low prices due to the very low demand, caused by COVID-19 but the recovery was not that great to allow oil to reach the yearly open price. Last week was rather consolidative as the next month’s futures closed at $48.42, about 0.3% higher. During the last month, oil prices are moving into a tight range between $45.85 and $49.40, looking for an obvious reason to exceed $50. On Monday, there is the important OPEC meeting and some possible decisions are able to affect the oil prices seriously. Technically speaking, above the current levels there is the milestone price of $50 and below, the important supports at $47.50 and $46. Trusting the first scenario more, we’ll try long positions this week.
2020 was the absolute dreamy year for Bitcoin and most of the cryptos. More specifically, Bitcoin crashed the all-time records of 2018 (close to $20,000) and performed profits, more than 300%! The pressure on USD, the perception that Bitcoin may replace gold, the positive statements by many important markets analysts and decision makers and the fiscal policies have caused a crazy rally. The last week of the year was accordingly explosive as Bitcoin closed at $33,098, with a great performance of 26%. It’s really difficult to say where this rally can stop as many analysts predict much higher prices but many crypto investors will try to liquidate their profits by selling. Currently, Bitcoin is in a sharp drop and it is moving around $30,000, so investors should be very careful. We’ll stay out this week, in order to investigate what’s going on.