Daily Market Report
22 Feb 2021
Dollar sellers took control of the FX board on Friday, with EUR/USD advancing for a second consecutive day. Nevertheless, it held within familiar levels and retreated from its intraday peak of 1.2144 to finish the week pretty much unchanged in the 1.2110 price zone. The greenback fell despite US government debt yields recovered their bullish route, with the benchmark on the 10-year Treasury note setting at 1.34%. Wall Street closed mixed, with the S&P closing in the red for a fourth consecutive day.
Markit published the preliminary estimates of its February PMIs on Friday. The report showed that in the Euro area, the services sector continues to weaken, with the index falling further into contraction territory. Manufacturing output, on the contrary, keeps improving. In the US, the Markit Services PMI printed at 58.9, beating expectations, while the manufacturing index met the market’s forecast with 58.5.
The Federal Reserve published its semi-annual monetary policy report, which showed that policymakers believe that the risks of coming business failures “remain considerable” in the country. The greenback will likely remain weak in the upcoming days. Data wise, the week will start with Germany publishing the February IFO survey, with the Business Climate seen improving from 90.1 to 90.5.
The EUR/USD pair remains confined to familiar levels, and it is neutral in its daily chart. It’s a handful of pips above a mildly bearish 20 SMA, while technical indicators advance around their midlines, lacking momentum. The 4-hour chart shows that selling interest surged around a bearish 200 SMA, while the 20 and 100 SMAs converge directionless around 1.2080. The Momentum indicator advances within positive levels, while the RSI retreats within positive levels, all of which indicate a limited bullish potential.
Support levels: 1.2060 1.2020 1.1970
Resistance levels: 1.2170 1.2210 1.2250
The USD/JPY pair fell on Friday for a third consecutive day, trimming half of its weekly gains. The dollar’s broad weakness was behind the slump, with speculative interest ignoring US Treasury yields rallying to one-year highs. Meanwhile, equities traded with a mixed tone. The DJIA held near record highs, but the S&P edged lower.
Japan published the January National inflation, which came in at -0.6% YoY, while the core reading also printed at -0.6%, better than expected. The country released the Jibun Bank Manufacturing PMI, which improved in February to 50.6, according to preliminary estimates. Japan will publish this Monday the January Corporate Service Price Index, foreseen at -1.1%, down from .0.4% previously.
The USD/JPY pair trades in the 105.4o price zone and is at risk of falling further. In the daily chart, the pair is below its 200 SMA, but above a bullish 20 SMA which provides dynamic support around 104.90. Technical indicators retreated sharply from overbought levels but remain above their midlines. In the 4-hour chart, the risk of a steeper decline is cleared, as technical indicators plunged remain well into negative levels, with the Momentum heading firmly south and the RSI stable at around 44.
Support levels: 105.30 104.95 104.50
Resistance levels: 105.80 106.20 106.55
The GBP/USD pair hit 1.4035 last Friday, a level that was last seen in April 2018, finishing the week with substantial gains just above 1.4000. The pound rallied despite tepid UK Retail Sales figures, as in January, sales were 8.2% down in the month, much worse than anticipated. The annual reading printed at -5.9%, also missing expectations. Earlier in the day, the country published February GFK Consumer Confidence, which improved to -23 from -28. Finally, the Markit preliminary estimates of February PMIs resulted better than anticipated, and above January figures.
Meanwhile, the UK government reported that it will outline this week how they will proceed with easing restrictions. The rate of coronavirus contagions in the UK continues to decrease as vaccine immunization speeds up, anticipating a brighter economic future for the kingdom.
The GBP/USD pair is bullish in the daily chart, as it further advanced beyond bullish moving averages, with the 20 SMA around 1.3770. Technical indicators have partially lost their bullish strength after reaching overbought territory, but overall, the risk remains skewed to the upside. In the 4-hour chart, the risk is also skewed to the upside, as the pair develops well above bullish moving averages, while the Momentum indicator maintains its bullish slope within overbought readings. The RSI indicator eases from daily highs, but remains well into positive levels, far from suggesting an upcoming decline.
Support levels: 1.3985 1.3940 1.3890
Resistance levels:1.4035 1.4080 1.4120
The Australian dollar was the best performer last Friday, soaring to 0.7876, its highest in almost three years. The pair closed the week a few pips below the level, up for a third consecutive week. The pair rallied despite Australian Retail Sales advanced a modest 0.6% in January, according to preliminary estimates, missing the expected 2%. Also, the preliminary estimate of the February Services PMI came in at 54.1, while the manufacturing index printed at 56.6, both missing the market’s expectations.
The AUD/USD pair is technically bullish and could extend its advance, particularly if it surpasses 0.7915, March 2018 monthly high. The daily chart shows that technical indicators maintain their strong bullish momentum near overbought territory, as the pair finally moved away from its 20 SMA. In the near-term, and according to the 4-hour chart, the pair is bullish despite overbought, trading far above all of its moving averages and with technical indicators holding ground in extreme levels.
Support levels: 0.7710 0.7675 0.7630
Resistance levels: 0.7770 0.7815 0.7850
Silver prices had been outperforming gold prices in recent days, but that trend appears to be stalling judging by the failed attempts in the gold and silver ratio to crack the 64 level. Nevertheless, silver ended higher on Friday but below its highs for the day of $27.6100. XAG/USD traveled from a low of $26.4820 to end at $27.2910 and up 0.94%.
The event of the week will be with the Fed's Jerome Powell who will be feeling the need to push back against taper talk which could help to sustain higher prices in the precious metals arena. However, the rise in real yields has lowered the bar for prices to break lower. On the other hand, silver also benefits from optimism for economic growth and demand for its industrial properties. Industrial metals have been stronger of late, with copper and nickel leading the gains. However, the complex could be due for a correction from a technical standpoint and a close eye will have to be kept on the state of play in global covid cases and the vaccine roll-out.
Technically, the price of silver has been climbing the stairs on an hourly basis and respecting the 10 and 20 EMA confluences on dips. From a 4-hour perspective, this has translated into a 38.2% Fibonacci retracement of the corrective bullish impulse and a test of the 4-hour 20 meeting the 10 EMA as support. A break here opens risk to a confluence of the point of control for Feb business and a 50% mean reversion of the same impulse around 27.0600.
Overall, the price action of late has been contained within a consolidation between 26.6900 and 29.7955 breakout levels.
Support: 27.0600 26.7753 26.1902
Resistance: 27.8778 28.3952 28.9803
Gold prices ended Friday in the green as the US dollar gave back some ground to higher risk-currencies for which the metals took advantage of too. XAU/US ended up near 0.5% on the day closing at $1,784.19 having travelled from a low of $1,760.75 to a high of $1,791.69.
There have not been any significant changes in fundamentals and instead, the focus remains on the bond markets and expectations of rising inflation which has been forcing US yields higher. In this light, gold investors will eagerly be awaiting a semi-annual monetary policy testimony from Fed Chair Powell on Tuesday and his opinion on inflation risks into the second quarter of 2021.
Nevertheless, bonds may stay fragile and yields elevated no matter how hard Powell attempts to downplay the risks to real yields. However, the dollar has struggled to rally on the recent spike in yields and the reflation story will likely be a headwind for the greenback considering the number of dollars that both the Fed and the Whitehouse intend to print to support the economy. In fact, the coming week could revive a bearish tone for the US dollar when investors expect some progress on the US$1.9trn fiscal stimulus bill, where a vote might go to the House floor on Friday.
Meanwhile, technically, the price has been stabilizing at a weekly support structure around the lows in the $1,760s and is finding resistance in the $1,785/90 area, a 38.2% retracement zone of the latest bearish cycle on the daily chart. This is also an area where the Fibo meets old support, so it would be expected to hold initial tests. Failures of this level opens risks of a downside extension deeper into the demand area which guards a drop into $1,720. Above $1,800, where the 10-day EMAis also located, bulls will seek a deeper correction to target the 20 EMA that currently meets a 61.8% Fibo retracement near $1,820.
Support: $1,775 $1,755 $1,729
Resistance: $1,803 $1,829 $1,850
US stocks were ending the day mixed below record highs as investors weigh the risks of higher yields and the implication of higher rates. The 10-year Treasury yield added 6 basis points to 1.345% for the highest close in nearly a year.
The Dow Jones Industrial Average modestly increased by a fraction of a point to 31,494.32. Overall, industrials, real estate and financials led the way, while utilities and consumer staples lagged. Meanwhile, as banking members of the Dow Jones extended their post-breakout gains, Wells Fargo was the best in the sector, up 13%, on a report of the Fed approving the bank's overhaul plan and prospects of higher lending rates.
Technically, the 21 Jan highs, 31,272, are a focus to the downside while the index tests the upside pressures of the 4-hour 10 EMA and bullish commitments below it. A break of these supports open risk to a 38.2% Fibonacci retracement in the 30900s which guard a deeper retracement of 30,750 in a 50% mean reversion level.
Support: 31,270 31,045 30,899
Resistance: 31,604 31,957 32,163
Oil prices were pressured on Friday, wth WTI falling by some 2.2% into the New York close and ending in bearish territory according to the 4-hour charts. WTI fell from a $60.17 high to a low of $58.50 in anticipation of supply and Texas ramping up its output.
Texas energy companies had begun preparations to restart oil and gas fields shuttered by freezing weather and power outages. The freezing temperatures in Texas and the Plains states had curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts have estimated. Meanwhile, US energy firms last week slashed the amount of oil rigs operating for the first time since November, according to Baker Hughes data
Meanwhile, as the US recovers from this weather crisis, Iran is coming back onto the front pages. The nation has insulted the Biden Administration despite its attempt to return to the negotiation table with respect to Nuclear Deal talks before sanctions are lifted in its threats to restrict international inspections of nuclear sites. The next inspection is scheduled for Feb 23. This is a development that oil markets will be watching closely because an eventual nuclear deal could prematurely unleash unwanted oil into the market.
Technically, the price has broken the convergence of the 4-hour 10 and 20 EMAs to the downside and is now resisted at old support in the $59.60s. $58.80 is the marked structural support level that guards a downside continuation to test the $58.10 and $57.50s there after. $62.25 is the upside barrier for prospects of a continuation.
Support: $58.80 $57.77 $55.94
Resistance: $59.88 $60.62 $61.63