Daily Market Report
25 Feb 2021
The EUR/USD pair topped once again in the 1.2170 region, retreating afterwards to a weekly low of 1.2108. The dollar gathered momentum ahead of the US opening, once again following the lead of US Treasury yields, which rose to new one-year highs. The yield on the benchmark 10-year Treasury note hit 1.435% and heads into the American close at around 1.37%, with the greenback retreating alongside. Meanwhile, stocks advanced, with the DJIA reaching fresh all-time highs.
On the data front, Germany published the final version of its Q4 Gross Domestic Product, which was upwardly revised to 0.3% from 0.1%. The US released January New Home Sales, which were up by 4.3%, beating expectations. This Thursday, the EU will publish February Consumer Confidence and the Economic Sentiment Indicator for the same month. The US, on the other hand, will release January Durable Goods Orders, and the second estimate of Q4 GDP, expected to be upwardly revised from 4.0% to 4.1%.
The EUR/USD pair bounced from the mentioned low and trades in the 1.2140 region, little changed for a second consecutive day. The near-term picture is neutral, as the pair is trading between moving averages and within the familiar levels, as technical indicators hover around their midline, without clear directional strength. The downside is limited by the 38.2% retracement of the November/January rally at around 1.2060, while on the upside, sellers remain aligned in the 1.2170/80 price zone.
Support levels: 1.2100 1.2060 1.2015
Resistance levels: 1.2175 1.2210 1.2250
The USD/JPY pair advanced this Wednesday to trade as high as 106.10 to settle around the 105.90 level. US Treasury yields were the main driver for the pair, as long-term ones hit fresh one-year highs. Substantial gains in Wall Street following the US Federal Reserve´s chief second day of testimony fueled it further, spurring risk appetite.
During the upcoming Asian session, Japan will release the final reading of the December Leading Economic Index, foreseen unchanged from the preliminary estimate at 94.9. The Coincident Index for the same period is expected at 87.8.
The USD/JPY pair has trimmed most of its previous week losses and trades near this year’s high at 106.22, the immediate resistance level. The near-term picture is now bullish, as it has advanced beyond all of its moving averages, with the 20 SMA turning higher above the longer ones. Technical indicators have gained ground above their midlines, with the Momentum maintaining its bullish slope and the RSI stable at around 62. Once above the mentioned daily high, the pair has room to extend its advance to 106.95, the high from August 28.
Support levels: 105.70 105.25 104.90
Resistance levels: 106.30 106.60 106.95
The GBP/USD pair hit 1.4237 during Asian trading hours, a level that was last seen in April 2018. The pair, however, gave up quickly afterwards to end the day with modest gains around the 1.4120 level. The pound continues to outperform its major rivals when the greenback enters sell-off mode, as the speed of the coronavirus immunization campaign hints at a sooner economic comeback.
The Bank of England took note of the pound’s strength, as BOE’s Deputy Governor Ben Broadbent, testifying on monetary policy, noted that sterling appreciation could have some depressive effect on inflation, adding that inflation expectations are not a level that would be worrisome for policymakers. The UK macroeconomic calendar will remain empty this Thursday.
The GBP/USD pair has a limited bearish potential despite trading over 100 pips’ below its daily high. The movement seems a due correction, but further declines are unclear in the near-term. The 4-hour chart shows that the pair bottomed around a bullish 20 SMA, currently providing dynamic support around 1.4090. Technical indicators retreated from overbought readings, the Momentum heading south within positive levels and the RSI flat at 58.
Support levels: 1.4090 1.4035 1.3985
Resistance levels: 1.4140 1.4185 1.4235
The AUD/USD pair resumed its advance and reached a fresh multi-year high of 0.7948, poised to close the day a few pips below it. Wall Street positive momentum provided support to the aussie, while Treasury yields retreating from intraday highs limited the greenback’s advance. The softer tone of gold prices partially capped the pair’s bullish potential.
Australia published the Q4 Wage Price Index at the beginning of the day, which rose by 0.6% QoQ and 1.4% YoY, beating the market’s expectations but still well below average and near record lows. The country will publish Q4 Private Capital Expenditure early on Thursday, foreseen at 0% from -3%.
The AUD/USD pair is still poised to test the 0.8000 threshold, but in the near-term, the risk of a bearish corrective decline increases. The 4-hour chart shows that it bounced from a bullish 20 SMA, but also that the Momentum indicator turned lower, diverging from price action, and that it remains well below its weekly high. The RSI indicator remains flat around 65.
Support levels: 0.7900 0.7865 0.7820
Resistance levels: 0.7965 0.8000 0.8035
Silver prices were firmer on Wednesday, out-doing its sister metal, gold, rising from a low of $27.3255 to a high in New York of $27.9390. Trading higher by some 0.63% in the final hour of Wall Street, the gold to silver ratio was down some 0.93% and on the approach to the recent lows at 63.96 printing a low on the day at 64.47.
Silver benefits from its industrial qualities and tends to converge with the commodity complex in general, more so than gold. On the day, the Thomson Reuters CRB index, which acts as a representative indicator of today's global commodity markets, traded to a fresh 2020 cycle and a weekly high of 195.3140 adding some 1.37% on the day.
Technically, the price of silver is mostly consolidated and bounded by the daily resistance and support, $27.2473 and $28.3285. Until either of these levels break, the price would be expected to drift between familiar ranges. With that being said, there is an emphasis on the downside if the price breaks below the neckline of the bearish W-formation at $27.5255. In doing so, this opens prospects of a downside continuation from the Feb highs to a measured -272% Fibonacci retracement level of the current daily correction’s range at $25.2300.
Support: $27.2432 $26.5297 $25.0550
Resistance: $28.0045 $28.7280 $ 29.4792
The US stock market was poised to close higher amid the Fed chairman’s reassurance in maintaining economic support. Jerome Powell spoke again on Wednesday and he pledged to support the struggling economy while arguing higher prices pertaining to any inflation would be transitory.
Consequently, the Dow Jones Industrial Average added 1.4% to 31,973.02, topping last week's record high. The S&P 500 gained 1.1% to 3,924.09 and the tech-heavy Nasdaq Composite out on 0.9% to 13,584.53. As far as sectors went, the energy led the sectors higher, with utilities the lone decliner.
Additionally, MSCI's all-country world index IACWI , a gauge of equity markets in 49 countries, added 0.16%, as rising stocks on Wall Street pushed the global benchmark to reverse losses. This sets a bullish backdrop for Asian markets on Thursday.
Technically, the index has denied the bears a free lunch and rallied sharply from the support zone. Bulls are firmly back in the driving seat with support coming in from the diverging 10 and 20 EMAs on the 4-hour chart with MACD firmly in positive territory.
Support: 31475 31303 31113
Resistance 31666 31837 32028
Gold prices were pressured on Wednesday, drifting lower into the final hour of Wall Street, down some 0.4% on the day. XAU/USD fell from a high of $1,813.91 to a low of $1,783.55 while the greenback firmed in European trade as US Treasury yields climbed to fresh yearly highs.
It was a volatile session for fixed income markets which sold off sharply before stabilising. The yield on the benchmark 10-year Treasury note printed 1.4300% according to TVC prices having rallied from 1.330% before scaling back to 1.37% into the New York close.
Meanwhile, the market is caught between what it truly believes, that inflation will pick-up as the economy normalises, and what the Federal reserve’s message is trying to convey, that elevated prices will prove transitory. Chairman Jerome Powell has indicated that it could take more than three years for the Fed to achieve its inflation goal. Nevertheless, the risk of a rise in the money multiplier is real, consistent with higher inflation, lower real yields and stronger gold prices in the longer-term.
Meanwhile, however, from a technical point of view, there is a bearish bias. The price is testing a critical 4-hour resistance at the neckline of a bullish M-formation between $1,800/04 and the 61.8% Fibonacci retracement dead inbetween at $1,802. Failures here and a run below $1,790 exposes $1,745.80 as a measured -272 Fibonacci retracement target of the daily correction’s range.
Support: $1,790 $1,754 $1,724
Resistance: $1,820 $1,857 $1,886
The price of oil has surged on Wednesday, in line with the risk-on mood and a major participant in the fresh cycle highs in the Thomson Reuters CRB index. WTI prices printed a fresh recovery high of $63.34bbls having rallied from a low of $60.99, ending on Wall Street some 3.3% higher.
The black gold has thrived in a post-covid-risk world while investors look through the increases of cases as the US surpasses 500,000 deaths. Instead, they are concentrating on the prospects of a successful vaccine roll-out and demand-side implications for the oil industry.
On Wednesday, oil hit fresh 13-month highs after US government data showed a decrease in crude output after a deep freeze disrupted production last week. US crude production fell last week by more than 10%, or 1 million barrels per day, during the rare winter storm in Texas.
The data equalled the largest weekly fall ever, the Energy Information Administration said. Refinery crude inputs also dropped to the lowest since September 2008 as the freeze knocked out power to millions. However, as mentioned in earlier notes, the prices at these levels may not be sustainable as nations seek to cash in at such strong prices and dump additional supply onto the market.
Meanwhile, from a technical standpoint, the price has extended the bullish trend from in between a 50% mean reversion and a 61.8% Fibonacci retracement level of the prior daily correction’s leg. According to a measured Fibonacci retracement of the correction’s range, there is still room for further upside between a -272% Fibo at $63.59 and a -61.8% Fibo at $64.37 have been reached. Meanwhile, the price action is bullish on the 4-hour chart within technically bullish conditions according to positive MACD and bullish 10 / 20 EMAs.
Support: $61.25 $59.93 $57.61
Resistance: $63.57 $64.89 $66.22