THE SAME MONETARY POLICY CONTINUES IN THE EUROZONE. ALL EYES NOW AT US INFLATION.
The ECB meeting last Thursday had little to add to what was already known about the course of the Eurozone. Interest Rates remained unchanged at 0%, the Monetary Policy was unchanged too, in particular the € 1.8 trillion Pandemic Emergency Purchase Program (PEPP) amount. The course of the Eurozone economy is considered satisfactory and the problem of high inflation, which has already led to price increases, is considered temporary.
On the other side of the Atlantic, stock markets corrected as the dollar, which strengthened significantly until Thursday, lost some ground after the yield on the US 10-year bond fell below 1.30%, which is considered a benchmark for the season.
Most European stock Indices also corrected while gold also had significant losses. Oil prices have recovered slightly and Bitcoin seems to have exceeded the expectations of its fans and after the recent rally, it could not continue to rise, performing a significant drop.
This week, of course, is dominated by the announcement of inflation for August in the US next Tuesday. If inflation stays high or rises further, it may send a signal to the markets that the US will be forced to tighten its Monetary Policy sooner than expected, and this will probably result in falling stock Indices and a stronger dollar. Inflation will also be announced during the week for the Eurozone, the United Kingdom, and Canada, while the announcements of Retail Sales in the USA, China, and the United Kingdom are also considered important.
The US SP500 Index closed last week with losses, at 4,460 points, down by about 1.60%. Rumors about a possible reduction in the Fed’s quantitative easing program, as well as bond yields, are the factors that mainly affect the Index during this period. Possibly tighter Monetary Policy will hit stock markets to some extent while the same is true of high bond yields. The announcement of inflation in the US on Tuesday will affect both of these factors. Technically speaking, the Index lost the 4,500 points it had recently recovered but any recovery above these levels will bring it back to its uptrend. On the contrary, any loss of support of 4,415 points will intensify concerns for further correction. We prefer long positions this week.
The German DAX30 Index moved lower last week, closing at 15,555 points, with losses approaching 1.50%. It was the second bearish week in a row for the Index, showing that it may not yet be ready to secure the 16,000 points, a level that had broken down in August. The ECB meeting with the stable environment that ensured for the near future somewhat interrupted the sharp downtrend of the DAX30, which if it manages to maintain above 15,500 units, has hopes of returning to the uptrend. We may open long positions this week.
The British FTSE100 Index fell sharply last week, closing at 7,005 points and losses that exceeded 2.30%. The decline was one of the largest in recent months on a weekly basis but the positive thing is that the Index managed to close above 7,000 points. Rumors of a tighter Monetary Policy by the Bank of England, as well as a possible increase in Interest Rates, are causing nervousness in the stock markets. Below 7,000 points the correction will probably intensify while any return to the positive uptrend requires at least a bullish breakout of the resistance of 7,100 points. We trust the bullish scenario more, so long positions is what we will open this week.
Last week was very bearish for gold, which closed just above $ 1,784, having lost more than 2.20%. The strengthening of the dollar was the main factor that determined this downward movement, while higher bond yields also played an important role, which is always a strong attraction for investors seeking safe havens and lower risk. Gold is a clear choice for investors to insure against high inflation trends and in this sense, the announcement of inflation in the US on Tuesday is of particular importance. $ 1,780 is a key level for a further decline as then there is no apparent support that can stop a possible downtrend so short positions is what we will open.
Last week was slightly bullish for oil with next month’s futures closing at $ 69.66. Production began to recover from Hurricane Ida, which struck off the East Coast of the United States and the Gulf of Mexico and shut down several stations and drilling rigs for several days, reducing U.S. production by about 200,000 barrels a day. Last week’s strong dollar probably halted a sharper rise in prices, keeping them below $ 70. Above $ 70 and especially above $ 70.60, we may see oil continuing the strong uptrend that has started since mid-August, even towards the $ 74.20 price range. Long positions is our selection for the current week.
EURUSD (Euro vs US Dollar)
The EURUSD was bearish last week, opening at 1.1881 and closing at 1.1811. The strong dollar prevailed, pushing the pair down, while the same climate was maintained from Thursday onwards, after the ECB meeting and the Press Conference of Christine Lagarde. Loose Monetary Policy and low Interest Rates in the Eurozone, according to the statements, are not going to change soon and this makes the euro weaker. The dollar may perform high volatility due to the announcement of inflation in the US with the next support of the pair being at 1.18, 1.17, and 1.1660, respectively so sell positions is our selection this week.
GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved slightly lower last week, opening at 1.3856 and closing at 1.3831. The dollar was strong, pushing the pair in part, but the pound has reason to be strong as statements about rising Interest Rates and tighter Monetary Policy in the UK increase, especially after Boris Johnson announced that a tax increase was imminent to support the National Health System of the country. These developments, if they take place, will support the pound and maybe the necessary fuel for the pair to rise to the 1.40 price range so buy positions is what we will open this week.
USDJPY (US Dollar – Japanese Yen)
The USDJPY moved slightly higher last week, opening at 109.70 and closing at 109.91. It was the fourth consecutive week of low volatility and oscillation for the pair, around 100 which is probably the price that the markets consider fair for the season. Bond yields rose slightly (the US 10-year bond yield rose from 1.30% to 1.32%) and, together with the strong dollar, gave the USDJPY a slight boost, but did not exceed 110. In Japan, there is political turmoil after the resignation of Prime Minister Suga Yoshihide but the markets do not seem to be worried. If the dollar continues to strengthen and in a possible bullish breakout of 110, the next target of buyers is 110.80 and this is what we will go after with buy positions.
EURJPY (Euro – Japanese Yen)
The EURJPY was bearish last week, opening at 130.33 and closing at 129.80. The weak euro, especially on Thursday, put pressure on the pair, which lost the critical price of 130, which it had recovered very recently. If the euro continues like this and given that Japan has positive economic results (annual GDP growth for the second quarter of 2021 above expectations), we may see the EURJPY return to the support of 128.60 so sell positions is our choice for the current week.
EURGBP (Euro – Great Britain Pound)
The EURGBP moved slightly lower last week, opening at 0.8568 and closing at 0.8538. The bullish reaction that took place in August does not seem to be continuous, with the pair turning again to the critical area of 0.85 since the euro also has reasons to be weak but the pound has prospects for strengthening too, as we saw above. Below 0.85, there is support at 0.8450 which can stand even a temporary obstacle to a possible downward movement of the EURGBP. We will try some sell positions this week.
USDCAD (US Dollar – Canadian Dollar)
USDCAD moved higher last week, opening at 1.2526 and closing at 1.2691. The US dollar was strong and the small rise in oil prices could not give the Canadian currency the strength it needed to react and stem the uptrend. The Unemployment Rate in Canada fell to 7.1% in August and the Bank of Canada meeting last Wednesday did not add any significant changes or information to investors. A bullish breakout above 1.2760 will probably fill investors with optimism for a possible path to 1.2950, which is a high of about ten months so buy positions is our selection for this week.
USDCHF (US Dollar – Swiss Franc)
Last week was bullish for the USDCHF, opening at 0.9130 and closing at 0.9179. The strong dollar was the determining factor for this move, surpassing the positive macroeconomic data of Switzerland and especially the Unemployment Rate, which fell to 2.9% in the country. The pair have been trying to rise for quite some time but for this effort to bear fruit we need to see prices above 0.9275 which is a high of about five months. We may go after this target with buy positions.
AUDUSD (Australian Dollar – US Dollar)
The AUDUSD moved lower last week, opening at 0.7452 and closing at 0.7350. The US dollar has helped the downturn move, with Australia still plagued by the pandemic. The Bank of Australia’s decision to tighten the Monetary Policy somewhat by reducing its bond-buying program could not turn things around, but that may mean that without this decision, the decline could have been greater. Both the positive results and the low inflation in China supported the AUD. Below 0.7290, it is possible to see a stronger downtrend so sell positions is our choice this week.
Bitcoin corrected violently last week, closing at $ 46,035 with losses exceeding 11%. Following the recovery of $ 50,000 caused by the El Salvador government’s decision to adopt Bitcoin as the country’s official currency, there was intense pressure through liquidations, and on Tuesday we had a flash-crash phenomenon with Bitcoin falling from $ 52,700 to $ 42,900, in just a few hours. This proves once again the instability, the high volatility, and the great risk that cryptocurrency investors run. The decline continues early this week and below $ 42,900 we may see a sell-off panic. Hopes for recovery are likely to be born above $ 47,500. We need to stay out for one week to see things better.