HINT FOR REDUCING THE QUANTITATIVE EASING PROGRAM BY THE FED
The long-awaited meeting of the Fed last Wednesday may not have come as a surprise as Monetary Policy and Interest Rates remained unchanged, but there have been some reports of a faster reduction of the bond-buying program (tapering) and an increase in Interest Rates in 2022, given the progress of the US economy and provided that this progress will continue in the coming months. These announcements, combined with some positive developments in the Evergrande issue from the middle of the week onwards, created a climate of optimism and thus the stock markets recovered and closed the week profitably. However, the dollar, after its temporary strengthening due to the Fed, came under strong pressure on Thursday and partially recovered on Friday.
In Europe, according to Christine Lagarde, the economy is recovering and thus a tighter Monetary Policy by the ECB is not a case of the near future. The continuing quantitative easing affects and weakens the euro, which also had negative financial announcements last week. Inflation announced in the Eurozone and Germany next Thursday may change things, especially if it is above estimates. Germany’s return to political stability may also play a role, following Olaf Scholz’s apparent SPD victory in Sunday’s German election.
Gold continues to be under pressure while oil, on the other hand, has continued its upward rally. Significant losses for Bitcoin after the announcement of the ban on cryptocurrency trading in China.
This week, major financial announcements have to do with GDP in the US and the UK, Durable Goods Orders in the US, inflation in the Eurozone and Germany, Unemployment Rate and Retail Sales in Germany, and PMIs in the US, China, Eurozone, and Germany.
The US SP500 Index returned to profits last week, closing at 4,445 points and performance of about 0.90%. The Index had started downwards, continuing the downtrend of the last two weeks but from Wednesday onwards, with the announcements of the Fed, an intense uptrend started that overcame the losses. Helping in the recovery was the information about a positive development in the case of Evergrande, an issue that has occupied the markets since it evokes memories of 2008 and Lehman Brothers. Exceeding 4,476 points will put the SP500 back on track for good while below 4,350 points the concern of greater correction returns. We prefer long positions this week.
The German Index DAX40 moved slightly higher last week, closing at 15,532 points, with profits close to 0.30%. The Index followed the uptrend of most major markets in the world, aided by the expected political stability that seems to be returning to Germany after Sunday’s election. The ongoing quantitative easing policy also favors stock markets as fresh money is directed to companies. As of September 20, ten more shares were added to the Index, with well-known companies now including Airbus, Puma, Porsche, and Siemens. The Index needs to exceed 15,770 points to stabilize the rise but below 15,400 points the worries of deeper correction return. Long positions is our selection for the current week.
The British FTSE100 Index was strongly bullish last week, closing at 7,028 points and gains more than 1.10%. The British economy is suffering from a shortage of basic commodities such as food and fuel, mainly due to a lack of drivers, but the calm that has returned to the markets after the Evergrande optimism seems to have a more catalytic effect. Stocks of Rolls Royce, British Airways, and Astra Zeneca are driving the recovery. A positive development is that the Index returned above 7,000 points after and of course, the target of buyers is the highs of about 1.5 years, above 7,195 points. On the contrary, a steady drop below 7,000 points is likely to halt the uptrend. We may open long positions this week.
Last week was slightly bearish for gold, closing at $ 1,750 and losing about 0.20%. It was the third bearish week in a row as rumors of a reduction in the Fed’s quantitative easing program push investors into other investment products and allay fears of inflationary pressures. The strengthened dollar and the rise in bond yields are also aggravating factors for gold prices. Below last week’s low of $ 1,738, gold could accelerate to $ 1,700 while we need to see prices above $ 1,790 for a good chance of recovery. We may try short positions this week.
Fifth consecutive bullish week for oil with next month’s futures closing at $ 73.95. Oil has already exceeded the significant resistance of $ 74.21 earlier this week and seems to be heading towards $ 77. Oil inventories dropped by 3.5 million barrels last week, which is an obvious sign of recovery in demand. Investors are confident in the recovery of the global economy after the pandemic, ignoring even the strengthening of the dollar (let’s not forget that oil is denominated in dollars). Corrections may arise from any short-term profits but this week we prefer long positions.
EURUSD (Euro vs US Dollar)
EURUSD moved slightly lower last week, opening at 1.1730 and closing at 1.1720. The fall would have been bigger since the week lows were at 1.1683 if there was not a bullish reaction on Thursday. The dollar strengthened on Wednesday after the Fed but the positive rumors about the Evergrande on Thursday created a risk-on mood to investors who preferred currencies such as the euro against the dollar. On Friday, however, the dollar strengthened again and so the week closed bearishly. A big target for traders of the pair and those who claim that the dollar will continue to strengthen, is 1.1664, on the way to support 1.16, which is a low of about 14 months so sell positions is our selection for the current month.
GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved down last week, opening at 1.3737 and closing at 1.3668. The dollar strengthened but the pound also weakened, although there have been reports that the Bank of England will pursue a tighter Monetary Policy soon, especially after the recent strong inflationary pressures. The supply problems of the British economy, as a result of Brexit, have been a big problem recently. The basic support is at 1.3570 because below these levels there will be prices that we have not seen in the last 9 months but we may see bullish reactions at these price levels so we may try buy positions.
USDJPY (US Dollar – Japanese Yen)
Last week was the strongest bullish week since the beginning of the summer for the USDJPY, which opened at 109.94 and closed at 110.75. It is not only the strength of the dollar but also the bond yields that have risen sharply (the US 10-year, from 1.36%, climbed to 1.45%). In addition, inflation in Japan was again announced in negative territory, at -0.4% in August, so the Bank of Japan is likely to continue its loose Monetary Policy. An important development will be the election of the leader of the Liberal Democratic Party in the country. 110.80 is the strong resistance under the current conditions and any bullish break out can lead to the high of 1.5 years, at 111.65. We prefer buy positions this week.
EURJPY (Euro – Japanese Yen)
The EURJPY reacted upwards last week with an opening at 128.92 and closing at 129.80, still staying below the psychological threshold of 130. The euro remains weak due to the continuation of the loose Monetary Policy by the ECB but the yen appears even weaker due to negative inflation in Japan. The rise was impressive but if there is no clear exceed of 130 no corresponding trend can be formed. We may try to open buy positions but only above 130.
EURGBP (Euro – Great Britain Pound)
The EURGBP moved higher last week, opening at 0.8531 and closing at 0.8570. The pair seems to be shaking upwards with a spring effect when it approaches the value range of 0.85. However, the Bank of England is more likely for a tighter Monetary Policy than the ECB, so the EURGBP cannot develop an uptrend and a return to 0.85 cannot be ruled out. We’re keen to open sell positions this week.
USDCAD (US Dollar – Canadian Dollar)
USDCAD moved lower last week, opening at 1.2755 and closing at 1.2647. The US dollar strengthened but the Canadian currency strengthened further, as oil prices performed high profits. We need to remind that oil, as the main export product of Canada, is a barometer for the country’s currency. Supporting Canada was the return of political stability following the victory of Prime Minister Justin Trudeau in the recent elections and the strong macroeconomic results that were announced. This situation can further strengthen the Canadian dollar and of course, the target of sellers is the price range of 1.25 so sell positions is our selection for the current week.
USDCHF (US Dollar – Swiss Franc)
A bearish week passed by for the USDCHF, opening at 0.9315 and closing at 0.9243. Last Thursday, at the meeting of the Bank of Switzerland (SNB) it was decided to keep Interest Rates at -0.75% but there were clear hints of a tighter Monetary Policy. With these data, there seems to be a balance in the pair since the dollar also appears strong. The continuation of the uptrend is probably favored above 0.9335 while the further decline is favored below 0.92. We may try buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Last week was practically neutral for the AUDUSD that opened and closed in the price area of 0.7260. Evergrande is a major issue for the Australian economy as China is the largest buyer of the country’s products & commodities and any shocks will directly affect it. The Bank of Australia in its announcement of its Minutes last Tuesday noted that Interest Rates will not increase before 2024 while emphasizing that the economy is progressing despite the slowdown observed due to the resurgence of the pandemic. Below 0.7220, there is an increased probability that the pair will continue to decline. Stopping this course is favored above 0.7320. Our selection is to open sell positions this week.
Last week was a downturn for Bitcoin, which closed at $ 43,205, and losses that exceeded 8.50%. The catalyst was China’s recent decision to ban all cryptocurrency transactions, which shook the market. The decline might have been greater if there had not been positive news from Twitter announcing that it would offer users the ability to trade Bitcoin via Lightning Network’s off-chain technology. So, after the initial shock, Bitcoin already seems to be recovering to $ 44,000, and if it manages to steadily exceed $ 45,000 it may leave behind the recent crisis. We will try long positions this week, following the very recent positive sentiment.