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As a key inflation signal, the CPI data release scheduled for the…

As a key inflation signal, the CPI data release scheduled for the 14th, will provide a clearer outlook on the Fed’s bond tapering schedule

20210914
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Market Focus

US stocks advanced today, ending a five-day slide. Energy group gave a remarkable performance among all. Crude oil prices surged approximately 1.5% on Monday, which lead to a 2.94% gain for energy companies. The OPEC Monthly Report released on Monday predicted a stronger demand for crude oil on a combination of rising fuel consumption and output disruptions elsewhere. Industrial metals also rose, as the price of aluminum reached the highest level in 13 years at $3000 a ton.

Healthcare companies, on the contrary, were the worst performing group on Monday. Moderna Inc slipped 6.60% on a daily basis, which weighed on the Nasdaq 100 index and kept it in negative territory. On top of that, market sentiment soured over the past few weeks, as investors were concerned that the spread of Delta variant around the world would obstruct economic growth. Retail and travel stocks declined.

Market focus has shifted to US core CPI data, which is scheduled to be released on Tuesday. Investors will use the reading to assess expectations about the timing of bond tapering and interest rate hikes. The CPI measures price change from the perspective of the consumer. It is a keyway to measure changes in purchasing trends and inflation.

Meanwhile, President Joe Biden’s $3.5 trillion tax-and-spending plan faced challenges. House Democrats on Monday released a package of tax increases that fell short of President Joe Biden’s ambition. The Democratic proposal from the Ways and Means Committee will raise the top corporate tax rate to 26.5% and the top rate on capital gains to 25%, both less than what Biden had proposed. This includes a 3.8% Medicare surtax on high earners, and the top capital gains rate would be 28.8%.

In Asia, Chinese technology stocks plunged as Beijing officials want to break up Alipay, the app owned by Ant Group that has more than 1bn users, and create a separate app for the company’s highly profitable loans business.

Main Pairs Movement

Most USD based currency pairs saw declines on Monday as the Greenback continues its strong upward momentum. The U.S. Dollar Index (DXY) saw a combined gain of 0.18% since last Friday, and a combined gain of 0.46% over the past week. A slower-than-expected economic recovery and the imminent release of CPI data this week has provided strong tailwind for the Dollar. As a key inflation signal, the CPI data release, scheduled for the 14th, will provide a clearer outlook on the Fed’s bond tapering schedule.

On Monday, house Democrats pieced together their initial proposal for a new wave of corporate tax increases over the next few years. The Democrats are aiming for a 26% increase on corporate tax rates from the current 21% to 26.5%, a 3% surtax on individuals earning over 5 million dollars a year, and a newly raised capital gains tax. This new tax bill proposal by the Democrats is their first step to achieving President Joe Biden’s tax agenda, which he set during last year’s campaign.

This Tuesday’s scheduled U.S. core CPI release by the BLS will bring substantial volatility to the currency market. Inflationary sentiment will be highly related to this report, and investors will be looking for any clues about the Fed’s bond tapering schedule.

Technical Analysis

GBPUSD (4-hour Chart)

The GBP/USD pair gained slightly on Monday, crawling back some of the losses on Friday. However, once American trading hours began, Cable saw a steep drop, then a rapid recovery but saw resistance at 1.384. The Greenback, supported by elevated producer price figures for August, remains bullish, suppressing Cable at its current price level and creating strong resistance at the 1.3895 price level, which has been unsuccesfully tested by Cable three times over the last month. Key CPI statistics are due on Tuesday, and if inflation remains high, the Federal Reserve could move up its bond tapering schedule.

On the technical front, RSI stands at 51 as of writing, suggesting bullish sentiment. Currently, Cable sits at the center of the bollinger bands with no clear movement direction after hitting the upper band on the 10th.

Resistance: 1.3857, 1.3884, 1.3958

Support: 1.3756, 1.3680, 1.3602

USDCAD (4- Hour Chart)

The USD/CAD pair did not see much price movement during the European trading session, the pair hovered between 1.266 and 1.269. However, once the American trading session began, the pair saw strong selling pressure and dropped as much as 0.29% to the day’s low of 1.266 over the first three hours of trading. The pair recovered towards the end of the American trading session and gained back 0.25%. The pair is trading at 1.267 as of writing. The upward movement of WTI has provided some level of support for the loonie, but the strength of the Greenback seems to offset the momentum provided by oil’s price rise.

On the technical front, RSI stands at 55 as of writing, suggesting that there is some bullish buying. The pair currently sits at the middle of the Bollinger Bands and is trading above the 50, 100, and 200 day moving average.

Resistance: 1.2708, 1.2834, 1.2912

Support: 1.2581, 1.252, 1.2494

AUDUSD (4- Hour Chart)

The AUD/USD pair began the day dropping 0.13%, but quickly recovered after the American trading session began. The pair met resistance at around the 0.737 price level and has since retraced back to around the 0.735 price level as of writing. The pair snapped its week long losing streak and has now found some support at the 0.735 prive level. The strong Dollar has supressed the pair’s growth, and this week could lead to more bulling Greenback movements as CPI data for August is due this Tuesday. Higher than expected U.S. CPI data could, once again, bring strong downward pressure for AUD/USD.

On the technical front, RSI stands at 44 as of writing, suggesting mild bearish sentiment ahead. Currently, the pair sits in the lower half of the Bolliner bands, while resistance for the pair sits at the middle of the Bollinger bands. As indicated earlier, higher-than-expected U.S. CPI data would put strong bearing pressure on the pair, thus lower support levels sit at 0.7285 and 0.7222.

Resistance: 0.7468, 0.7534

Support: 0.735, 0.7285, 0.7285, 0.7222

20210914
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Markets have been volatile as the continued spread of Covid-19 has undermined…

Markets have been volatile as the continued spread of Covid-19 has undermined the economic recovery, even as central banks reaffirm an accommodative stance

20210913
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Market Focus

U.S. equities notched their biggest weekly decline since mid-June in volatile trading as investors assessed the latest read on the economy after more strategists weighed in with cautious comments on the market.

The S&P 500 fell 0.8%, pushing its loss for the holiday-shortened week to 1.7%. Apple Inc. was the biggest decliner in the Dow Jones Industrial Average on Friday, after a court ordered the iPhone maker to make changes to the way it generates money from its App Store. Gold posted its first weekly decline since early August after data on U.S. producer prices rekindled debate over when the Federal Reserve will pull back on stimulus.

Markets have been volatile as the continued spread of Covid-19 has undermined the economic recovery and lifted supply-shock inflation, even as central banks reaffirm an accommodative stance. In the U.S., equities have been whipsawed amid mixed economic data and a lack of clarity on the Fed’s timeline for reducing its asset purchases. On Friday, data showed the producer price index for final demand, a key measure of inflation, increased more than expected last month.

Strategists from almost all the top Wall Street banks have come out this week with a nervous message about the U.S. stock market. The common themes in their analysis include valuations at historical extremes, a near non-stop rally for seven months, an economy that looks soft, and the imminent tapering of Fed stimulus.

Apple dropped 3.3%, the most since early May. A federal judge said Friday that the company must let app developers steer consumers to external payment methods.

In Europe, the Stoxx 600 fell 0.3%, with telecommunications and utilities underperforming, while miners and technology led the gainers. The European equities benchmark posted a second weekly loss, the first time that’s happened since the end of April, as investors reduced their risk based on concern that central bank stimulus measures might get pulled back quickly.

Main Pairs Movement

Most commodity currencies gained against the dollar after a call between U.S. President Joe Biden and Chinese leader Xi Jinping boosted risk sentiment, despite U.S. stocks fluctuating on growth concerns.

Traders on Friday were also focused on trade tensions with China. The Biden administration is weighing a new investigation into Chinese subsidies after the U.S. president urged China’s Xi Jinping to cooperate on a phone call.

The Canadian dollar touched a session high after the country’s employment report showed job growth beating estimates, rising 90.2K versus the 68.2K forecast; USD/CAD is edging lower to 1.2658, after dropping as much as 0.6%.

EUR/USD edges lower to 1.1816; the pair rose as much as 0.2% to 1.1851, putting an earlier end to an active week of hedging. Swiss franc and Japanese yen weakened against the dollar Friday; USD/JPY advances 0.2% to 109.93. The pound shrugged off data showing that the U.K.’s economic rebound ground to a halt in July, with focus on a hawkish tilt from the Bank of England; GBP/USD gains less than 0.1% to 1.3844.

Technical Analysis

GBPUSD (4-hour Chart)

The GBP/USD pair advanced on Friday, reaching a fresh weekly high around the 1.3888 level. But the pair failed to preserve its bullish traction afterwards, retreating back during American trading hours. The cable was last seen trading at 1.3851, rising 0.11% on the day of writing. The Bank of England’s Governor Andrew Bailey’s hawkish comments on Wednesday provided some bullish momentum for GBP/USD, he said that half of the MPC members believe the basic conditions for a rate hike have been met.

On the technical front, RSI stands at 58 as of writing, suggesting bull-movement ahead. The MACD also rose above the signal line, which means the pair is likely to experience upward momentum. In conclusion, we think the market will be bullish. As for the Bollinger Bands, the price is now sitting between the upper band and the moving average, which also indicates a bull market.

Resistance: 1.3892, 1.3949, 1.3983

Support: 1.3751, 1.3680, 1.3602

USDCAD (4- Hour Chart)

The USD/CAD pair was surrounded by heavy selling pressure during European trading hours, touching a three-day low on Friday. Fortunately, the pair has rebounded back to 1.264 level after American session began, offsetting half of its losses for the day. The pair is trading at 1.2643 at the time of writing, posting a 0.16% loss on a daily basis. The larger-than-anticipated drop in the unemployment rate in Canada, which was down to 7.1% in August, gave a boost to the Canadian dollar. On top of that, crude oil prices surged 2.4% for the day, which also set the bullish tone for the commodity-linked loonie.

On the technical front, RSI stands at 51 as of writing, suggesting that there is no obvious trend now. But the Bollinger Bands shows that the price rises from the lower band and it’s moving toward the SMA line, which indicates a bull market. In conclusion, we think the market will be bullish as the pair heads to test the 1.2673 resistance, a break above that level will open the door for additional near-term profits. The next resistance sits at 1.2728.

Resistance: 1.2673, 1.2728

Support: 1.2583, 1.2552, 1.2520

AUDUSD (4- Hour Chart)

The AUD/USD pair gave a remarkable performance in the first half of the day, rising above the 0.7405 level. But it’s a whole different story once the American session begins. The pair lost its bullish momentum and dropped sharply, eliminating most of its profits for the day. A rebound witnessed in US dollar weighed on the AUD/USD, as the market mood turns cautious ahead of the weekend. Therefore, the demand of the safe-haven dollar is increasing. At the time of writing, the pair is trading at 0.7365, rising merely 0.01% for the day.

On the technical front, RSI stands at 43 as of writing, suggesting tepid bear-movement ahead. For Bollinger Bands, the price is falling from the upper band and crossing below the moving average, as a result, the lower band has become the loss target. In conclusion, we think the market will be bearish as the pair is now heading to test the 0.7345 support.

Resistance: 0.7427, 0.7455

Support: 0.7345, 0.7285, 0.7222, 0.7106

20210913
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The European Central Bank will slow the pace of its pandemic bond-buying…

The European Central Bank will slow the pace of its pandemic bond-buying program in the final quarter of 2021

20210910
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Market Focus

U.S. stocks fell in volatile trading as mixed economic data kept investors on edge about the timing of stimulus tapering even as the relentless spread of the Covid-19 delta variant undermines global growth. The S&P 500 notched a fourth straight decline after erasing an intraday gain that had brought it to within 0.4% of its all-time high. The dollar weakened as 10-year U.S. Treasury yields declined. European equities fell, with the Stoxx 600 erasing the initial advance it saw after the European Central Bank said it will slow its emergency support but keep policy accommodative.

The European Central Bank will slow the pace of its pandemic bond-buying program in the final quarter of 2021 – a shift President Christine Lagarde insists isn’t a move heralding a wind-down in stimulus for the euro-region’s still-vulnerable recovery.

Lagarde spoke after the Governing Council decided it will conduct purchases at a “moderately lower pace” than the roughly 80 billion euros ($95 billion) of monthly acquisitions deployed in the past two quarters. She justified the decision by saying the euro region’s “increasingly advanced” rebound could be maintained with less monetary help.

The president also cautioned that the global spread of the delta variant could yet delay the full reopening of the economy. Officials, who revealed new forecasts showing inflation will still undershoot their target, reiterated a pledge to keep the 1.85 trillion-euro program running until March 2022 or later if needed, signaling they’re not yet ready to discuss ending the measure.

The ECB’s move to persist with stimulus contrasts with major central banks elsewhere, a differing stance from what Lagarde’s comments implicitly emphasized. The U.S. Federal Reserve and the Bank of England have signaled their intention to gradually unwind crisis-era aid.

The timetable for slower purchases in the next three months now makes the Dec 16 meeting a crucial one for the future of the central bank’s stimulus programs. While the president said the decision was unanimous, keeping that consensus may be a challenge among policy makers whose judgments of the threat posed by inflation are known to differ.

Main Pairs Movement

Cable shone amid a quiet day in the forex space, gained 0.5%. The surge in Cable is more convincing from a technical perspective rather than a fundamental one. That said, Cable’s fundamental outlook is mixed. On the positive side, BoE Governor Bailey and other MPC members see that the minimal condition to consider rate hike has been met. However, the upcoming increase in tax rate proposed by Prime Minister Borris Johnson may weigh on the Sterling.

Euro dollar was mostly muted on Thursday despite ECB’s announcement of winding down monthly asset purchases from 60 to 70 billion euros. In the past two quarters, the PEPP program devoted 80 billion euros every month to help prop up the united economy. As health authorities around the world started rolling out vaccinations since the beginning of the year, the Euro Zone has seen COVID-19 infections dropped significnatly as of late, and economic activities are set to return to normal. However, ECB is still a long way from nudging interest rate to above 0% as President Largarde repeatedly reminded that this is NOT a “taper”.

We have seen relatively strong performance in the safe-haven dollar, as well as the Japanese Yen and Swiss Franc, which climbed 0.49% and 0.54% respectively. The move was consistent with a drop in US Treasury yields, with the 10-year yield down 0.38%. An increase in demand for hedging may foreshadow a retreat risk appetite in the financial market as concerns of a freshly emerged variant, which has come be known as the ‘Mu’ variant, may pose challenge to current recovery around the globe. The lastest WHO report suggests that the ‘Mu’ variant can surpass immune defences and cause infection. More importantly, it is already making its presence internationally, and has spread to over 49 US states and 40 different countries worldwide.

Technical Analysis

CHFJPY (Daily Chart)

CHFJPY is edging its way toward the lower bound of a big ascending tunnel, and has threatened for a breakout to the downside. Prices continue to be choppy in the past few days after neck-line of a double-top pattern, coinciding with the purple descending trendline, and managing to cap further upward moves.

Its given price is gradually deviating from a heavily guarded resistance zone bove, and the odds are favouring sellers. In order to establish a convincing bearish reversal, sellers will have to breach the support line at 119.2 and the aforementioned ascending trendline. If succeeded, we could be looking at further downside space at 117.4 and 115.74, levels that were last seen in April.

Resistance: 120.55, 122.8

Support: 119.2, 118, 116.9

GBPUSD (Daily Chart)

Cable shrugged off bearish moves in the last three days, advancing 0.5% on Thursday. This pair registered a long lower wick yesterday as prices plunged as much as 0.43%, then rebounded on 61.8% Fibonacci support of 1.373, and settled above SMA20. The fact that prices failed to penetracte SMA20 is leading up today’s surge.

In the broader picture, Cable broke above a three-month descending trendline, then retraced downwards to validate the breakthrough. Now, the bullish reversal is coming close to completion, and the last obstacle would be the previous high of 1.3874. Further in the north, big resistance sits around 1.396 and 1.41, with the former keeping Cable subdued since June.

Resistance: 1.387, 1.396, 1.41

Support: 1.373, 1.367, 1.357

EURJPY (Daily Chart)

Selling bias for EURJPY is being carried over on Thursday, and has plunged 0.36%. This pair has formed a small double-top pattern, and today’s leg lower aided to finish up the formation. There is limited downside space to capitalize on. As we highlighted in the daily chart, bulls have set up a defense zone around 129.3 and 129.5. This zone could collaborate with SMA20 to provide robust support to EURJPY.

On the upside, bulls will look to contest the recent high of 130.56. If conquered, doors will open wide to potential upward move to 132.2. Conversely, any radical downside plunges will be bounded by 128.38.

Resistance: 130.56, 132.2, 134.13

Support: 129.3-129.5, 128.38

20210910
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