INFLATION AND POSSIBLE ACTIONS BY THE FED
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Weekly Report: Indices, Commodities, Currencies, and Cryptos
Financial markets continue to move and are affected by the recent announcement of high Inflation in the US and how this may change the Monetary Policy of the Federal Reserve (FED). The expected actions are mainly around tightening Monetary Policy and rising Interest Rates, but this also needs to be done carefully because a hasty increase in Interest Rates could slow down banks’ lending to companies, while also slowing down the economic development that is as necessary as we get out of the pandemic.
Other highlights are Joe Biden’s proposal to announce a $ 6 trillion package to boost the US economy and to repeat the ECB’s Monetary Policy statements and that it will remain so as Inflation in the Eurozone continues to remain low.
The main stock markets continued to rise while the dollar slowed somewhat from its downtrend from Wednesday onwards. Gold continued its rally; the price of oil rose significantly while Bitcoin and most cryptocurrencies are not said to raise their heads after the recent major correction.
This week is very intense in the news and great volatility is expected in the markets: Unemployment Rate and PMIs in the US, Inflation, and Unemployment Rate in the Eurozone and Germany, Monetary Policy and speech by Andrew Bailey in the UK, OPEC meeting, Interest Rates and GDP in Australia, GDP in Switzerland and Unemployment Rate in Canada.
The US SP500 Index closed higher last week, at 4,203 points and gains over 1%. High Inflation in the US, the expected reactions from the FEF, and the announcement of Biden for a package of support for the economy with 6 trillion dollars affect the Index that managed to exceed and close above 4,200 points. Monetary Policy and Interest Rate decisions are expected from the Fed, but they have to deal with high Inflation on the one hand and economic recovery on the other. The SP500 is less than 1% away from all-time highs and it makes sense for buyers to be optimistic about new highs, but clouds are beginning to re-emerge in US-China relations on the occasion of COVID-19 and research into its origins. Any worsening of the climate will have a bad effect on the Index with the first strong support being at 4,030 points but we’ll keep on opening long positions.
The German Index DAX30 closed last week with slight gains of 0.50%, at 15,502 points. During the week, however, and specifically on Tuesday, the Index recorded new highs of all time, approaching for the first time 15,600 points, but somewhere there appeared a wave of sellers that brought a strong correction to 15,340 points. Friday’s recovery, however, raises optimism for new highs but at such inconceivable heights for the prices of the DAX30, it is not ruled out a new strong wave of sellers that below 15,300 points may intensify. We trust the bulls more so we’ll try long positions for one more week.
Last week was mixed for the British FTSE100 Index, which closed at 7,012 points and very marginal gains. The Index had a lower performance than most major Indices as the United Kingdom is plagued by the Indian mutation, which is causing a new rise in cases, threatening to return to normalcy. Significantly, the Index remained above 7,000 points and there are optimistic voices to approach the significant resistance at 7,140 points but a loss of 7,000 points and even more, prices below 6,800 points will create a big tsunami of worries that could potentially cause a big correction. We believe in a quick recovery so long positions is our selection this week too.
Gold continued its rally, for the fourth week in a row, closing at $ 1,906 and having gains approaching 1.30%. Inflationary pressures in the US, as announced for April and are expected to intensify in May, strengthen the gold that is the traditional choice of investors. Given the corrective course of recent weeks for Bitcoin and most cryptocurrencies that are also (or so it is considered) a shield against Inflation, gold gains an even greater advantage. In the near future, Monetary Policy and Interest Rate policy by the FED, combined with the course of the dollar, will determine the course of gold. Technically, the first step to recovering $ 2,000 is resistance at $ 1,962 so we’ll try long positions this week as well.
Last week was a strong uptrend for oil, with next month’s futures closing at $ 66.63, with gains close to 4.40%. The oil market is dominated by the OPEC meeting next Tuesday, where it is expected to take into account the latest developments and make decisions regarding production. Optimistic forecasts for a rapid recovery in the aftermath of the pandemic, along with rising oil demand, have pushed up prices and outpaced production through Iran, which has resumed oil exports after the apparent normalization of relations with the West. The strong resistance of $ 68 is in the “shooting distance” for the road for $ 70 but the decisions of OPEC are capable of causing great volatility and changes in the trend. We may try low-risk long positions this week, keeping our eyes on OPEC.
EURUSD (Euro vs US Dollar)
Last week was slightly bullish for the EURUSD which opened at 1.2181 and closed at 1.2192. The whole rise took place at the beginning of the week while from the middle and after the dollar it started to strengthen due to the expectations created for a tighter Monetary Policy by the FED. Also, the announced Continuing Jobless Claims were lower than expected and this creates a certain optimism for the announcement of the Unemployment Rate next Friday (NFPs) in which most of the eyes of investors are focused. The euro, on the other hand, has lost some of its momentum as the ECB maintains a loose Monetary Policy, according to recent statements by its officials. If there is new evidence for a change in Monetary Policy in the US, we may see the dollar strengthen and the exchange rate return to 1.21 but otherwise, the upward trend will continue to 1.23. We trust more in the first case, so we may try sell positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Fourth consecutive bullish week for the GBPUSD, which opened at 1.4153 and closed at 1.4188. Statements from the Bank of England that Interest Rates may rise earlier than planned have given new impetus to the pound sterling. There is also widespread optimism that the British economy could grow well above forecasts due to strong savings created by the lack of consumption in the lockdown era. Of course, there is an obvious concern in the UK about the Indian mutation and how much it threatens to return to normalcy, and of course, the situation could change if the dollar takes a different turn if US Monetary Policy changes. Many announcements this week may cause high volatility but a strong dollar could cause corrections below 1.41 so we may try sell positions this week.
USDJPY (US Dollar – Japanese Yen)
Last week was bullish for the USDJPY, opening at 108.90 and closing at 109.83. The dollar recovered amid expectations of a Monetary Policy change by the Fed and optimism about the results of the NFPs on Friday, but the fact is that the yen also appeared weak after the announcement of the Unemployment Rate in Japan, disappointed (2.8% in April from 2.6% in March). The pair rose above 110 but could not be maintained at these levels and this raises some concerns about the continuation of the rise. This week with major announcements in the US could increase volatility but the benchmark price for the USDJPY trend remains at 110. We may try buy positions, only in a solid breakout above 110.
EURJPY (Euro – Japanese Yen)
Unstoppable, the EURJPY continued its strong uptrend, opening at 132.68 and closing at 133.92. The euro did not appear particularly strong but the recent strong weakness of the yen pushes the pair higher and higher, with the ultimate goal of buyers, the 3-year high, at 137.50. The current week has opened with a small correction to 133.70 but serious correction concerns will be below 132.50 so we insist on opening buy positions.
EURGBP (Euro – Great Britain Pound)
Last week was slightly bearish for EURGBP as it opened at 0.8599 and closed at 0.8590. The recent news from the Bank of England gives some extra credits to the GBP while the continuing loose Monetary Policy in the Eurozone weakens EUR. We’ll try sell positions this week, targeting the price area of 0.85.
USDCAD (US Dollar – Canadian Dollar)
Last week we saw a slowdown in the strong downtrend of USDCAD, with the pair opening and closing in the price range of 1.2070, having generally consolidative trends. Curiously, this slowdown in the downturn occurred in a week when oil prices strengthened significantly, given the large oil-Canadian currency correlation. So strong support at 1.20 proves to be a strong hurdle for the USDCAD and it makes sense to have a bullish reaction in case of strengthening of the US dollar. Canada is still in lockdown, unlike the US which is gradually returning to normalcy. Important announcements and news for the US economy this week, important is the announcement of Canada’s Unemployment Rate on Friday and we may try buy positions, considering a possible comeback of the USD.
USDCHF (US Dollar – Swiss Franc)
We saw a bullish reaction for the USDCHF last week, opening at 0.8978 and closing at 0.8998, however below the critical benchmark of 0.90. The US dollar and announcements (mainly around the labor market – NFPs) will set the tone this week, but the announcement of Swiss GDP on Tuesday is also important. As long as the pair does not recover above 0.90, the chances of the downtrend continuing significantly increase. We are keen to try buy positions after a solid breakout above 0.90.
AUDUSD (Australian Dollar – US Dollar)
AUDUSD continued to decline for the third week in a row, opening at 0.7726 and closing at 0.7709. The US dollar was strengthened due to the expectations of a change of Monetary Policy by the Fed but also based on improved financial announcements in combination with Biden’s announcements for the support package of 6 trillion dollars. The Bank of Australia maintains that Interest Rates will not change until 2024, regardless of the course of the country’s economy, and this is pressing the Australian dollar even if commodity prices, especially metals, have risen. The price range of 0.7675 is strong support for the pair and needs a bearish breakout for further decline, otherwise, the trend may be reversed. We may try sell positions this week.
Bitcoin took an anemic uptrend last week, closing at $ 35,678 and gaining just under 3%. This upward reaction can in no way reassure Bitcoin & cryptocurrency investors. The US regulator says it wants to play a more active role in the cryptocurrency market and wants to put a “regulatory perimeter” on digital currencies. There are also positive developments such as Ray Dalio’s claims that he owns cryptocurrencies or that the big cryptocurrency holders (whales) bought 77K Bitcoins last week. China, however, has sought to shatter hopes of a serious recovery by spreading rumors of a ban on cryptocurrency mining. The conclusion that emerges from all this is that the digital currency market is still far from decentralized, while government announcements and tweets of specific individuals cause huge volatility and changes in trends. $ 30,000 seems like a real possibility as recovery hopes rise above $ 41,000 but we’ll give some more credits to the south by opening short positions this week.