Daily Market Report
23 Feb 2021
The greenback edged lower on Monday, trading against its major rivals alongside equities. The EUR/USD pair traded as high as 1.2169, heading into the US close trading a handful of pips below the level. Encouraging European data provided support to the shared currency, as Germany published the February IFO Business Climate, which improved to 92.4 from a revised 90.3, as expectations and the assessment of the current situation improved by more than anticipated.
The greenback enjoyed some short-lived demand as US Treasury yields reached fresh one-year highs, with that on the 10-year note peaking at 1.394% but retreated alongside. Equities, in the meantime, traded with a soft tone, pulling off daily lows but unable to post substantial gains. Nevertheless, optimism took over speculative interest amid hopes for a soon to come economic comeback.
This Tuesday, the EU will publish the final version of January inflation, foreseen unchanged from preliminary estimates at 1.4% YoY. The US will publish the February CB Consumer Confidence index, foreseen at 90.2 from 89.3 previously. Also, US Federal Reserve chief, Jerome Powell, is due to testify before Congress. Investors are waiting for any hint on QE tapering.
The EUR/USD pair retains its early gains but has lost its bullish momentum, stalling its advance just ahead of the 1.2170/80 price zone. In the 4-hour chart, the pair is firmly anchored above all of its moving averages, but only the 20 SMA turned higher. Technical indicators neared overbought readings before turning lower, holding within positive levels. Overall, the risk is skewed to the upside, but the pair needs to clear the mentioned resistance to be able to extend its advance.
Support levels: 1.2130 1.2090 1.2050
Resistance levels: 1.2175 1.2210 1.2250
The USD/JPY pair trades around the 105.00 level, accelerating its slump during US trading hours amid renewed dollar’s sell-off. The pair is down for a fourth consecutive day, despite US Treasury yields having reached fresh one-year highs. Wall Street traded mixed, as the DJIA posted a modest intraday advance, but the S&P extended its decline for a fifth consecutive day.
Japan published the January Corporate Service Price Index, which came in at -0.5% YoY, better than anticipated but worse than the previous -0.4%. The country will celebrate a holiday on Tuesday, the Emperor’s Birthday, with no data releases scheduled for the day.
The USD/JPY pair is at risk of extending its slump in the near-term. In the 4-hour chart, the pair is trading below its 100 SMA for the first time in a month, while the 20 SMA gains bearish strength above it. Technical indicators have fallen into negative levels, now consolidating around their daily lows. Further declines are to be expected on a break below 104.95, the immediate support.
Support levels: 104.95 104.50 104.20
Resistance levels: 105.35 105.80 106.20
The GBP/USD pair jumped to a fresh multi-year high of 1.4085, an almost three-year high, backed by the prevalent dollar’s weakness and the UK government’s plan to ease lockdown measures. UK Prime Minister Boris Johnson explained that restrictions will be eased in four steps, with a minimum of five weeks between each step. The final step, which will lift all social restrictions and allow all sectors of the economy to reopen, will begin no earlier than June 21.
The UK macroeconomic calendar will kick-start this Tuesday with the release of UK employment data. The ILO unemployment rate for the three months to December is foreseen at 5.1% from 5.0% previously, while average hourly earnings in the same period are seen rising. Also, the number of unemployed people is expected to have risen to 35K in January, vs 7K in the previous month.
The GBP/USD pair trades in the 1.4070 price zone, and could continue rallying in the upcoming sessions. In the 4-hour chart, the 20 SMA accelerates north well below the current level and far above the larger ones, which also head higher. The Momentum indicator eases from overbought levels, but the pair holds near its daily highs. The RSI indicator, in the meantime, has stabilized above 70, without signs of upward exhaustion.
Support levels: 1.4040 1.3985 1.3930
Resistance levels: 1.4080 1.4120 1.4165
The Australian dollar is among the best performers, trading against its American rival in the 0.7920 area, its highest in three years. The aussie’s positive momentum was backed by resurgent commodities’ prices, with gold recovering well above the 1,800 level. Wall Street also provided support, with the DJIA trimming its latest losses and nearing record highs. Data wise, the Australian macroeconomic calendar will remain empty until next Wednesday, when the country will publish the Q4 Wage Price Index.
The AUD/USD pair is pressuring its daily high ahead of the Asian opening, overbought, but without signs of bullish exhaustion. The pair is up for a third consecutive day and the 4-hour chart shows that technical indicators are trying to resume their advances, despite being at extreme levels. The 20 SMA heads sharply higher in the 0.7820 area, while the 100 and 200 SMA lack directional strength, developing some 200 pips below the current level. The immediate support is 0.7915, March 2018 monthly high.
Support levels: 0.7915 0.7870 0.7840
Resistance levels: 0.7930 0.7965 0.8000
Silver prices marched higher to score $28.1711 from a low of $27.2755 and was embarking on the final hour of Wall Street some 2.75% higher for Monday. The compounding risk-on environment and pause in rising US yields helped to see the white metal print the highest levels since the start of the month.
The rally in the industrial and precious metal has seen the gold/silver ratio also sink to the lowest levels since the start of the month in a continuation of a year long bearish trend. Purely from a technical perspective, there is immediate scope for a close below the 2016 summer lows and a run to a -61.8% Fibonacci retracement of the prior correction down in the 58 area.
Meanwhile, the prospects for the rest of the week will largely depend on the outcome of the Fed’s chair Powell event and his signal for no rush for either tapering or tightening. Additionally, the US dollar could well continue to be pressured as the US President addresses Congress with the expectation that he will make the case for a sizable multi-year fiscal package.
Technically, the price of silver is in the hands of the bulls, but it would be expected to correct a significant portion of the latest bullish impulse. According to the daily time frame’s line chart, $27.56, as being the 15th Feb line chart/closing highs, guards a correction to a 38.2% Fibonacci retracement at $27.36.
Support: $28.07 $27.11 $26.27
Resistance: $28.90 $29.87 $30.82
US stocks were mixed again on Monday despite the risk-on sentiment driving investors into riskier asset classes. The dip in US yields did little to deter investors into the bond market in the hunt for higher yields, in anticipation of a steeper longer term curve.
However, the Dow was the standout performing index, approaching the Wall Street close up by some 0.22% having edged higher from a low of 31,286.6 to a high of 31,653.50 adding around 75 points.
Meanwhile, the prospects of rising inflation has been known to trigger valuation concerns, hitting shares of high-flying growth companies. Stock in Apple Inc AAPL, Microsoft Corp MSFT, Alphabet Inc GOOG , Tesla Inc TSLA and Amazon.com Inc AMZN resumed their slide from the previous week, falling between 0.9% and 5%. However, the Dow was boosted by a 5% gain in Walt Disney Co DIS.
Technically, the index has yet again found support at the 21 Jan highs and is defying gravity. That being said, a break of the aforementioned structure around 31,272 opens risk of a deeper retracement to test the 38.2% Fibonacci level of 30,959 ahead of a 50% mean reversion of the same late 2020 rally to 30,748.
Support: 31,475 31,303 31,113
Resistance: 31,666 31,837 32,028
Gold prices rallied at the start of the week as the greenback crumbled ahead of the Federal Reserve's chair Jerome Powell speaking on Tuesday. XAU/USD was higher by some 1.4% at the start of the final hour of Wall Street trading at $1,808 having travelled from a low of $1,780.88 and to a high of $1,812.64.
The precious metal recovered from an 8-month low scored late last week following the surge in bond yields and as investors rekindled their love of US bonds, attracted by the higher rates on offer to take on government debt again. However, the bulls came back on board as the prospects of lower real returns that could be severely eroded if inflation takes off circulated.
All ears will be on Powell's outlook for both inflation as well as unemployment levels which remain high in the US which will be expected to cap economic gains as well as wage inflationary pressures, a positive for gold prices. Additionally, there is an upside risk for gold prices if Powell pushes back on the tapering narrative.
Technically, the price is back above the psychological $1,800 and has sailed towards the $1,820 mark, stumbling at $1,812 along the way there in what would be expected to cap the price momentarily until the next bullish surge on the hourly time frame. From a 4-hour perspective, the 10 and 20 EMA bullish crossover and MACD on the verge of moving into positive territory is a positive development for medium term prices as well. This too cements the prospects for the $1,820 psychological target for the sessions ahead and leading into the Powell event where higher volatility would be expected.
Support: $1,790 $1,753 $1,724
Resistance: $1,819 $1,856 $1,886
The price of oil extended the start of the week’s gains in Europe and New York, rallying to a high of $61.80 in WTI from a low of $58.86bbls. Headed towards the Wall Street close, the price was up over 4.3% at $61.47bbls.
However, the stark fundamental risk stays with the prospects of OPEC+ disciplines and compliance peaking. As warned in earlier notes, the higher price environment incentivizes nations to unwind the excess capacity into the market.
Moreover, the Iran threat is hanging over the market like a knife on a string should an eventual nuclear deal and sanction relief lead to additional crude on the market. Also, Russia is looking for additional output increases and impressive demand gains will be needed to support prices at these levels.
That being said, the risk-on sentiment is in the driving seat and prospects of nations, such as the UK, emerging out from lockdown in the spring time will only help to buoy the prospects of a faster paced global economic and industrial recovery, driving in the demand for crude.
Support: $61.25 $59.93 $57.61
Resistance: $63.57 $64.89 $66.22