LOOKING AT INFLATION
Weekly Report: Indices, Commodities, Currencies, and Cryptos
The rally in the stock market continues, with the major indices in Europe and the US being consecutively high. The dollar had significant losses for the second consecutive week, with March Inflation in the US, at a monthly level announced last Tuesday at 0.6% and an annual level of 2.6%. These annual inflation rates are higher than the Fed’s Interest Rates at 0.25% and higher than the yields on the 10-year US bond that has fallen and is currently hovering at 1.57%.
There are also concerns that Inflation could soar further after Biden announced of a $ 3 trillion fiscal expansion package, given the Fed’s intention to keep Interest Rates low for some time until the US economy is on its feet, after the pandemic.
Europe’s economic results were judged positively by the markets and so the euro strengthened, while the week for gold and oil was up. Bitcoin and all cryptocurrencies are in large correction.
There is widespread optimism for a post-pandemic economic recovery, as international deposits have risen by about $ 5.4 trillion, raising consuming expectations.
This week is dominated by the ECB meeting on Eurozone banking Interest Rates and Monetary Policy, but no significant changes or surprises are expected. At the end of the week, the PMI indicators for the most important economies in Europe and America are also announced.
The US SP500 index continues bullish for another week, closing at 4,172 points, with gains close to 1.4%. Macroeconomic data favors growth, with US retail sales outperforming expectations (let’s not forget that the US has a large domestic consumption of manufactured goods and services). Geopolitically, there are some concerns, especially on the issue of Ukraine, but investors do not seem to be affected at the moment. Buyers, of course, insist, with the next visible target at 4,200 points, but with four consecutive weeks of a strong uptrend, some may liquidate their profits, causing corrections in the index. We keep on being long on SP500 for one more week.
The German DAX30 Index moved strongly up last week, closing at 15,521 points and gains of about 1.6%. European stocks continue to be seen as an opportunity by many investors and institutions and so the DAX30 had its seventh consecutive upward week, with a total return of about 12.5%. Only a few short-term gains seem to be able to stop the rally of the index, which if it continues at this pace, even targets 16,000 points. Long positions is our selection for the current week.
Higher for another week for the British FTSE100 Index, which closed at 6,990 points and gains approaching 1.5%. The Index is a breath away from the psychological threshold of 7,000 points that we had to see since February 2020, before the pandemic. There are concerns about the UK’s post-Brexit course, but vaccinations and the opening of many activities last week leave room for optimism for a speedy economic recovery. We’ll try long positions for one more week.
Gold continued to rise last week, closing at $ 1,777 and recording gains approaching 2%. It was the strongest weekly rise in 2021 as gold was supported by high Inflation announced in the US, declining bond yields, and a weak dollar. Gold managed to break the resistance of $ 1,767 and closed the week above these levels, with the next obvious target for buyers at $ 1,800. A break below $ 1,750 may mean a reversal of the uptrend that began in early March. We prefer long positions this week.
Last week was a strong uptrend for oil, with next month futures closing at $ 63.13, with gains close to 6.5%. OPEC and the International Energy Agency predict a rapid recovery in demand due to the recovery of the global economy after the pandemic, and this fact has overshadowed the announcement of increased oil production in the coming months. The $ 60 recovery is considered a significant indicator and any prices above $ 63.85 will reset scenarios for $ 65 or even $ 70. Conversely, in the event of prices below $ 62.20, $ 60 scenarios will return to the forefront. We’ll try some low-risk short positions this week.
EURUSD (Euro vs US Dollar)
It was the second strong uptrend week for the EURUSD which opened at 1.1890 and closed at 1.1982, very close to the landmark price of 1.20. The dollar slipped after the announcement of high Inflation in the US and the euro strengthened, following the positive economic announcements in the Eurozone, mainly the Trade Balance. There may be reactions from sellers in the 1.20 price range, but any consolidated uptrend will put the pair on the upside for good. In case the sellers prevail, the short-term goal for many will be the support of 1.1835. The ECB meeting on Thursday on Interest Rates and Monetary Policy in the Eurozone is the highlight of the week for the euro. We’ll wait until we see a breakout of 1.20 and then we’ll open buy positions.
GBPUSD (Great Britain Pound – US Dollar)
We saw a strong uptrend for GBPUSD last week, opening at 1.3706 and closing at 1.3838, and all days of the week, clearly bullish. The dollar was weak due to falling bond yields but also due to the risk aversion of many investors who see the economic recovery coming. The pandemic situation in the UK is improving in terms of new cases and deaths, whetting the appetite of buyers for prices close to 1.40.
Many economic announcements in the UK this week may increase pair’s volatility: Unemployment Rate on Tuesday, Inflation, and speech by Andrew Bailey (Bank of England) on Wednesday, and Retail Sales on Friday. Buy positions is our selection for the current week.
USDJPY (US Dollar – Japanese Yen)
The second bearish consecutive week in the row for the USDJPY which opened at 109.70 and closed at 108.79. The fall in bond yields from 1.78% to 1.57% in 2-3 weeks has had a catalytic effect on the pair, causing a loss in the first phase of the milestone price at 110 and a loss of support at 109.35. The pair is already very close to the next support at 108.40 but in case the bond yields turn up again, buyers will seek prices close to 110. Sell positions is our selection.
EURJPY (Euro – Japanese Yen)
A practically neutral week passed for the EURJPY which opened and closed in the price range of 130.35 – 130.40, with relatively low volatility. The pair early this week has a strong downward trend, having already lost the milestone price at 130. If this is consolidated, the next target of sellers is 128.30. EURJPY seems to have found a ceiling around 130.60 and has great difficulty moving above. We prefer sell positions this week.
EURGBP (Euro – Great Britain Pound)
The EURGBP moved correctively last week, after the big rise that had preceded, having opened at 0.8670 and closed at 0.8655. There was a balance as the euro and sterling strengthened but early this week there is strong downtrend pressure that if continued, could push the pair back to the 0.85 range. Based on the above, we’ll try some sell positions this week.
USDCAD (US Dollar – Canadian Dollar)
USDCAD had low volatility and slight losses last week, opening at 1.2539 and closing at 1.2507. The Canadian dollar could not benefit much from the weakness of the US dollar even though oil had strong gains as the economic data released for Canada was lower than expected. This gives the pair hope for recovery, especially in the event of a strengthening of the US currency and an uptrend may accelerate above 1.2640. On the contrary, a consolidation of prices below 1.25 will whet the appetite of sellers to support 1.2365. We may try buy positions this week.
USDCHF (US Dollar – Swiss Franc)
USDCHF continued lower for the second week, opening at 0.9252 and closing at 0.9199. The weakness of the dollar pushes the pair lower, and below 0.9180, there is an obvious return scenario to 0.90. If the dollar strengthens, it needs to exceed 0.93 to consider that the uptrend that has started since the beginning of the year, can continue. Sell positions is our selection for the current week.
AUDUSD (Australian Dollar – US Dollar)
Last week closed higher for AUDUSD, with an opening price of 0.7620 and a closing price of 0.7735. The Australian dollar strengthened after the positive results for Unemployment Rate in the country (5.6% in March from 5.8% in February) but also the general risk appetite of investors who always favors it. Interest Rates in China are announced on Tuesday and Retail Sales in Australia on Wednesday, and in case of the continued weakness of the US dollar, the pair may reach the resistance of 0.7850. However, it seems that a support has been built around 0.76 which needs strong news to break down. We prefer buy positions this week.
Strong corrections for Bitcoin last week, closing at $ 56,280 with losses of more than 6%. The volatility was huge as towards the end of the week, Bitcoin even reached $ 51,500. There is a strong rumor that the US Treasury Department may launch an attack on money laundering, which may be carried out through cryptocurrencies. This development overshadowed Coinbase’s public listing on the US NASDAQ and all the positive atmosphere created for Bitcoin, which hit a new high of $ 64,895 on Wednesday. The development with money laundering rumors complicates things even if Bitcoin reacts upwards at the beginning of the week and needs a return above $ 60,000 to calm investors. We’ll wait and see and we’ll stay out this week.