5/7/2021

POSITIVE RESULTS IN THE US JOBS MARKET BUT THE DELTA MUTATION THREATENS THE GLOBAL ECONOMY

General Comment
The last week closed with the very important announcement of the NFPs for June in the USA, with the result that it exceeded the analysts’ expectations for 700,000 new jobs as 850,000 new jobs were created. This, of course, gave new impetus to the stock markets as the strong growth scenario strengthened further but weakened the dollar which until Friday appeared particularly strong due to the expectations for the continuation of the loose Monetary Policy by the Fed. The truth is, however, that the scenario of a tighter Monetary Policy in the US is starting to gain more points, with scenarios of a decrease of the bond-buying program, and this may have given support to the dollar, in the last hours of the week.
But the big issue that dominates the markets in recent days is the famous Delta mutation, which threatens the return to normalcy since in many countries of the developed world there is an explosive increase in new cases and already in some of them the possibility of lockdown returns.
The euro weakened, as did the pound, but to a lesser extent, gold is trying to recover as oil prices rose again, especially after the OPEC meeting. Finally, Bitcoin had an anemic rise, but it is far from the recovery that cryptocurrency investors expect.
This week is dominated by the Fed meeting on Wednesday (FOMC Meeting) on Monetary Policy, where the slightest hint of how and when they will change in the future could lead to significant changes in market trends and volatility. There are announcements in the Eurozone (ECB Strategy Meeting, PMI indicators, Industrial Production, and Retail Sales) as in other strong economies but the Fed will be the focus of the markets to a large extent.

SP500
The US SP500 Index rose for another week, to 4,338 points with profits of around 1.5%. Throughout the week the Index had an uptrend but on Friday after the NFPs, this trend accelerated and so we had new record levels of all time. On the one hand, there is an expectation that a strong recovery in the US labor market will delay the tightening of Monetary Policy, and on the other hand, there is optimism that despite the return of COVID-19 and dangerous mutations, things will return to normal. After two weeks of continuous rise in the Index, it makes sense for some investors to want to liquidate their profits and if the Delta mutation raises more concerns, it is possible to see corrections, although the trend is sweeping upward so we may try short positions this week.

DAX30
The German DAX30 Index moved slightly higher last week, closing at 15,644 points and gains of almost 0.30%. It was the second week in a row for the index trying to approach the all-time high of 15,780 points, but the evolution of the pandemic and the Delta mutation are inhibiting factors. Germany itself does not yet have a serious problem as the number of new cases is low so far but there is uncertainty about the near future in the middle of the tourist season. In case of correction, the first strong support is at 15,250 points and we’re keen to try short positions this week.

FTSE100
The British FTSE100 Index ended slightly lower last week, closing at 7,063 points with losses at around 0.25%. The United Kingdom is affected by the Delta mutation, with around 25,000 new cases occurring daily, raising concerns and threatening the country with the fourth wave of pandemics. It is important for the Index to hold the 7,000 points in order to be able to look higher but below them, there is support at 6,870 points whose possible break out could lead to a strong downtrend. Short positions is our selection for the current week.

Gold
Second consecutive recovery attempt for gold that closed at $ 1,787, with gains just over 0.35%. This rise took place in the last days of the week as gold on Monday and Tuesday had a downward trend. Some statements by the Fed earlier this week about US inflation concerns put pressure on prices but the positive news that followed reversed the climate and so gold strengthened. These recovery efforts have not reversed the downtrend in gold that began in late May, and if the Fed meeting contains news of tighter Monetary Policy, we may see gold at a lower level, with $ 1,750 being a critical level. Short positions is our selection this week.

US Oil
Oil continued to rise last week with next month’s futures closing at $ 75.01, with gains close to 1.40%. The OPEC meeting last week did not bring any results and the markets took it as a continuation of the current situation, with the reduced production. Reservations about the Delta mutation and the expected increase in demand have somewhat slowed down the rally, especially towards the end of the week amid a dispute between Saudi Arabia and the United Arab Emirates over oil production. The crisis between the OPEC countries seems to be deepening and so no estimate can be made as to how much oil will be produced in the near future. Saudi Arabia insists on an immediate increase in production and the extension of the current agreement for 2022 to stabilize prices (with the support of other countries, such as Russia) but the UAE had ruled out this possibility, proposing a short-term increase and new planning for 2022. The next hours and days will be crucial so we’ll stay out this week.

EURUSD (Euro vs US Dollar)
The EURUSD moved lower last week, opening at 1.1932 and closing at 1.1864. The dollar strengthened throughout the week, until Friday and the announcement of the NFPs in the US where it lost significant ground after the very positive results from the US jobs market. The Delta mutation is sweeping the European continent and the euro does not seem capable of recovering under these conditions, as the ECB’s continued loose Monetary Policy to support the economy is a very strong possibility. A possible break of last week’s lows, below 1.18, may pave the way for the significant support of 1.17, which is a low price of about 8 months. The Fed meeting on Wednesday on US monetary policy (FOMC) is very important but we’ll try some sell positions for one more week.

GBPUSD (Great Britain Pound – US Dollar)
GBPUSD was bearish last week, opening at 1.3883 and closing at 1.3825. The strong dollar caused this fall, but it eased on Friday due to the NFPs. The UK’s GDP for the first quarter of 2021 was below expectations but some reports from Bank of England officials on high inflation gave rise to expectations that a loose Monetary Policy could not continue which could potentially strengthen sterling but everything would probably be affected from the dollar and the FOMC meeting on Wednesday. Below 1.3730 and even further below 1.3670, the pair is taking a downtrend so sell positions is what we’ll open this week.

USDJPY (US Dollar – Japanese Yen)
It was the fourth bullish week in a row for the USDJPY, which opened at 110.74 and closed at 111.02, showing that it is moving away from the resistance zone of 110.80 – 110.90. The dollar correction on Friday could not bring the pair below 111 and so early this week it strengthens again. The news in Japan was rather neutral but an important element is that the USDJPY strengthened, in contrast to the fall in bond yields. All this raises expectations for higher price levels, especially if there is an upward break above 111.65 so buy positions is our selection for the current week.

EURJPY (Euro – Japanese Yen)
The EURJPY returned to its downtrend, opening at 132.17 and closing at 131.72, after the big rise that had preceded and which did not seem to be able to change the downward trend that has started since the end of May. The balances are fragile as both currencies show weakness and, in these cases, the trend pattern usually prevails, with the next support being at 131.25 and below at 130 which will be our targets for our sell positions this week.

EURGBP (Euro – Great Britain Pound)
It was the seventh week in a row that the EURGBP has not gained a trend and is moving in a tight price range. Last week the opening price was at 0.8582 and the closing price at 0.8576. This sideways movement may accumulate momentum and we may see an explosion of volatility in the near future but most likely point down as the Bank of England is more likely to tighten its Monetary Policy than the ECB. Under these circumstances, we’re keen to open sell positions this week.

USDCAD (US Dollar – Canadian Dollar)
USDCAD moved slightly higher last week, opening at 1.2292 and closing at 1.2324. The rise was bigger until Friday but after the NFPs, the US dollar weakened and so the Canadian currency was able to benefit from the rise in oil prices. The two main factors that will affect the pair are the FOMC meeting on Wednesday and the decisions of OPEC. In case of an upward reaction of the USDCAD, buyers will chase prices close to 1.25 while in the opposite case, support at 1.2250 is important and by trusting the first case, we may try buy positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF was bullish last week, with an opening price at 0.9174 and a closing price at 0.9206. The dollar strengthened until Friday and had led the pair to 0.9275 but the NFPs caused a correction. In case the dollar strengthens, it is possible to see the USDCHF move even at 0.94 – 0.95. It all depends on the Fed and its decisions but we may try buy positions, trusting the USD strength.

AUDUSD (Australian Dollar – US Dollar)
Bearish was the last week was for the AUDUSD which opened at 0.7576 and closed at 0.7526, however above the 0.75 milestone price. The strengthening of the US dollar (albeit with the correction on Friday) and the weakening of the Australian currency due to the lockdowns that have returned to the country, cause a downtrend to the pair. This downtrend is on for about two months and if the Fed strengthens the US dollar on Wednesday and the AUDUSD is well below 0.75, this trend may expand and strengthen so we prefer sell positions this week.

Bitcoin
Last week was slightly bullish for Bitcoin, which closed at $ 35,289, with gains of about 1.70%. This mild uptrend is not able to calm the concerns of cryptocurrency investors and early this week Bitcoin is moving down to $ 34,000 again. There is some positive news about Bitcoin and cryptocurrencies, mainly from institutional investors but this is still overshadowed by China’s decision to ban mining in some provinces. Elon Musk has left an open window for Bitcoin if clean energy is used by the miners in the future, but the trend does not seem to change and the $ 40,000 required for an optimistic investor stance does not currently show a viable scenario. We’ll stay out this week because the risk/reward ratio is against traders these days.