24/5/2021

CENTRAL BANKS IN DILEMMAS

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Weekly Report: Indices, Commodities, Currencies, and Cryptos

General Comment

In the wake of the Fed and its announcements, as well as ECB Christine Lagarde’s speech, markets moved last week. Although Jerome Powell has repeatedly said that Monetary Policy will not change unless the desired goals in Unemployment Rate and Inflation are met, many analysts believe that rising US inflation (4.2% – the highest since the 2008 crisis) could trigger a tightening of Monetary Policy. The debate, of course, is about a possible reduction in the bond market by the Fed and not a change – an increase in Interest Rates, currently at 0.25%. Inflation is expected in May with concern and anxiety, and many analysts already predict that it is approaching 5%. In Europe, Christine Lagarde said on Friday that while there was progress in the economic recovery, uncertainties remain and loose policy would remain in place for several more months.
Bond yields stabilized (at 1.62% at the moment in the US decade), stock markets also stabilized while the dollar continued its downtrend, amidst the vortex of inflationary pressures. The euro strengthened, as did the pound, gold continued to rally while oil corrected downwards. Of course, one could not fail to mention the big drop of Bitcoin and all cryptocurrencies.
The current week is relatively poor in financial announcements and news (only the GDP announcements in the US and Germany stand out) and so the markets are expected to move again at the pace of central banks, in their statements and speculations about their Monetary and Economic Policy.

SP500

The US SP500 Index closed slightly lower last week, at 4,172 points and losses of about 0.40%. The Index started corrective but at the end of the week, it recovered, without closing profitably. There is a general optimism that the pandemic will be controlled even in the emerging countries, but also because of the positive announcements made by the US on Thursday (Initial Jobless Claims) and Friday (PMI indicators) that reversed the bad climate that had been created. The stabilizing trends of bond yields also contributed to the stabilization of the Index. The SP500 remains fairly close to the all-time high of 4,238 points and may have good hopes of approaching above 4,185 last week’s high, while below the support of 4,030 points, worries about further correction. We prefer long positions for one more week.

DAX30

With a slight loss of 0.17%, at 15,425 points, the German Index DAX30 closed last week. However, volatility did not decrease and the Index had two clear trends: strong decline until the middle of the week and strong recovery on Thursday and Friday. Vaccinations in Europe are continuing at a satisfactory pace and there is optimism that all travel restrictions will be lifted very soon and that tourism will have a good summer. The high of the Index at 15,535 points is quite close and its uptrend momentum allows optimism for higher prices but always in these cases, some sellers secure profits and can potentially cause corrections. We’ll keep on opening long positions for one more week.

FTSE100

Last week was slightly corrective for the British FTSE100 Index, which closed at 7,007 points and losses of 0.60%. The Index started again with pressures that brought it to 6,875 points, but it was able to recover and the closing of the week above the 7,000-milestone price is a positive development. There has been an obvious uptrend since last November and the first target of buyers is the high of about 15 months, at 7,142 points. A weekly close below 7,000 units will give more chances for a corrective move but again we prefer long positions.

Gold

Gold continued impressively for another week, closing at $ 1,882 and gaining more than 2%. There has been a strong rally since the beginning of March and the price range of $ 1,700 which means a return of over 10% for gold in just 2.5 months. Gold is strengthening due to strong inflationary trends (Central Banks printed a lot of money to deal with the effects of the pandemic) but also due to the declining trend of the dollar (let us not forget that gold is denominated in US dollars). The Economic and Monetary Policy of the major economies of the world will continue to be a barometer for gold, in combination with the course of the pandemic that determines the levels of risk that investors are willing to take. The first resistance on the road for $ 2,000 is close to $ 1,963, while down the first support is at $ 1,845. We’ll try long positions.

US Oil

Oil stopped rising last week, with next month’s futures closing at $ 63.83, with losses just over 2.50%. The main reason for the decline is the progress in US-Iran nuclear relations, and according to diplomats, the US could lift its sanctions, which would mean a rise in production and therefore the supply of oil to the international community. On Friday, however, oil prices recovered from the week low near $ 61.50, after rumors circulated that OPEC will take action to stabilize prices. The uptrend does not seem to have been affected even buyers seem to be optimistic about prices close to $ 67 – $ 68 so we may try some low-risk long positions this week as well.

EURUSD (Euro vs US Dollar)

Last week was bullish for the EURUSD which opened at 1.2144 and closed at 1.2180. The dollar continued to fall amid worries about high Inflation in the US, which may be even higher than 4.2% in April and may continue to rise if the Central Bank does not intervene. In Europe things are slightly better, Inflation in the Eurozone is still low, the PMI indicators were satisfactory but the EURUSD corrected on Friday after Lagarde’s speech which stressed that uncertainties still exist, suggesting that the loose Monetary Policy in the Eurozone will continue in the coming months. Buyers of the pair expect a bullish breakout of 1.2245 to pave the way for the 3-year high above 1.2350 but if things change, below 1.21 there are chances for 1.20. We’re keen to try buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

For the third consecutive week, we saw a strong uptrend for GBPUSD, opening at 1.4096 and closing at 1.4149. The dollar continued to drop for another week and news from the UK was quite positive: Unemployment Rate fell to 4.8% in April from 4.9% in March, Retail Sales recovered sharply and Inflation remained flat. Buyers are likely to take advantage of prices that we have seen since the spring of 2018, above 1.4240, but there are many analysts who, due to the relatively overbought levels, predict a correction to 1.40. Our selection for the current week is to open buy positions.

USDJPY (US Dollar – Japanese Yen)

The previous week was bearish for the USDJPY, opening at 109.30 and closing at 108.96. Except for GDP falling 1.3% against forecasts of 1.2%, the rest of Japan’s economic announcements (Imports, Exports, Inflation, Producer Price Index) were better than expected and this strengthened the Japanese currency. Bond yields have stabilized to slightly declining and as long as the dollar weakens, the USDJPY is unable to regain 110. Sellers are seeing support at 107.45 while buyers are fighting for the 110 landmark price and sell positions is what we’ll open this week.

EURJPY (Euro – Japanese Yen)

The strong uptrend of EURJPY was stopped last week after the pair opened and closed in the price area of 132.70. The strengthening of the yen combined with the correction of the euro after Lagarde’s speech on Friday stopped a strong upward series of four weeks. Technically, the pattern formation of weekly candles could mean a reversal of the trend, but this requires confirmation well below 132, otherwise, the pair will face the high price of 133.45 to continue the rise. We’ll stay out this week because the trend is bullish but there are several signs for down as well.

EURGBP (Euro – Great Britain Pound)

Stabilizing trends prevailed for the EURGBP last week, which opened and closed around 0.8605 while there was a decrease in volatility. There has been a balance between the euro and sterling, both of which have been strong lately but the UK seems to have better prospects as it is ahead of Europe in vaccinations and so it is possible to see the pair move towards 0.85. We’ll try sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

USDCAD continued to decline for the seventh week in a row, opening at 1.2105, stopping just above 1.20 as we had predicted, to finally close at 1.2065. The pair could not recover due to falling oil prices (which favors the Canadian currency) and of course due to the weak US dollar. In addition, the announcement of Retail Sales in Canada, at an impressive 3.6% in March, left no room for bullish reactions. The trend is bearish but around the price – a milestone of 1.20, buyers appear who can provoke upward reactions. Things are a bit blurry so we’d better stay out, waiting and seeing.

USDCHF (US Dollar – Swiss Franc)

The USDCHF continued to fall, opening at 0.9014 and closing at 0.8978, keeping alive and intact the strong downtrend that has started since the beginning of April and the price area of 0.94. In addition, the loss of 0.90 further favors sellers who are now targeting 0.8870 or even 0.8760 and this is what we’ll go after this week with our sell positions.

AUDUSD (Australian Dollar – US Dollar)

The AUDUSD continued to decline for a second week, opening at 0.7769 and closing at 0.7729, although the US dollar was still weak. The Bank of Australia Meeting Minutes disappointed the country’s currency investors, who expected a tightening of Monetary Policy, but this was not said. In addition, the news from the country’s labor market was negative (more than 30K jobs were lost in April) and of course, the Australian currency, the correction in the prices of some commodities, especially copper, had a negative effect. If things do not change, even the strong support at 0.7530 may be tested and we’re keen to open sell positions this week.

Bitcoin

The strong correction of Bitcoin continued unabated for the second week in a row, closing at $ 34,707 and total losses above 25%. Following Elon Musk’s tweets that sparked the first correction, it was China’s turn to say it was rejecting cryptocurrency trading, filling investors’ concerns and fears. In addition, there are rumors that Joe Biden plans to strengthen the tax regime around cryptocurrencies by requiring investors to declare all transactions over $ 10,000. Bitcoin had even reached $ 30,000 in the middle of the week, making one of the biggest corrections in its history and now the next few days are crucial because either there will be the recovery investors want or the correction will deepen with the most critical support at $ 28,800. We’ll stay out until things get clearer.