Technical Analytics Report

 

Data to consider this week:

  • Monday: China GDP q/y; Bank of England (BoE) Governor Bailey Due to Speak.
  • Tuesday: Limited Data.
  • Wednesday: Canada Inflation (CPI m/m); Bank of Canada (BoC) Monetary Policy Report, Rate Statement, Overnight Rate and Press Conference; US Presidential Inauguration Day.
  • Thursday: Australia Employment Change and Unemployment Rate; Bank of Japan (BoJ) Outlook Report, Monetary Policy Statement and Press Conference; European Central Bank (ECB) Monetary Policy Statement, Main Refinancing Rate and Press Conference; Philly Fed Manufacturing Index; US Unemployment Claims; BoE Gov. Bailey Speaks; New Zealand Inflation (CPI q/q).
  • Friday: UK Retail Sales m/m; Eurozone, UK and US Flash Manufacturing and Flash Services PMIs; Canada Retail Sales m/m.

Global Fundamental Analysis 18/01/2021 

Opening Call: The Australian share market is to open lower.

U.S. stocks declined after disappointing December retail sales. The yield on the 10-year Treasury note ticked lower to 1.10% from 1.128% Thursday. The WSJ Dollar Index was higher at 85.51. U.S. crude oil prices shed gains but closed higher for the week. Gold prices declined to post a loss for the week as the U.S. dollar firmed.

Australian Market

Australia’s S&P/ASX 200 index closed flat. Sentiment had previously been supported by a rebound in iron-ore prices.

US Market

U.S. stocks fell after President-elect Joe Biden unveiled a $1.9 trillion Covid-19 relief plan and the December retail-sales report came in weaker than expected, underscoring the coronavirus pandemic’s continued effect on the economy.

The Dow Jones Industrial Average lost 0.6%, the S&P 500 fell 0.7% and the Nasdaq Composite dropped 0.9%. All three indexes ended the week lower.

For several months, the markets have been riding a number of strong trends that have powered everything from large-cap stocks to bitcoin to record highs. Underlying all of it has been a bet on government and central-bank aid to offset the damage wrought by the pandemic.

Commodities

Gold futures slid to end lower for the week as the U.S. dollar strengthened and investors parsed President-elect Joe Biden’s recently announced $1.9 trillion Covid-19 relief plan.

February gold gave up $21.50, or 1.2%, to settle at $1,829.90. The settlement was the lowest for a most-active contract since Dec. 1, according to FactSet data.

Oil Futures

U.S. benchmark oil prices finished sharply lower, prompting U.S. prices to pare their gain for the week, as investors weighed fresh Covid-19 outbreaks in China, which has been an engine of demand as other major economies were slowed by the coronavirus pandemic.

West Texas Intermediate crude for February delivery fell $1.21, or 2.3%, to settle at $52.36 a barrel on the New York Mercantile Exchange. Prices based on the front-month contract ended the week with a modest 0.2% gain, they are third in a row, after settling Thursday at their highest since February of last year, according to Dow Jones Market Data. March Brent crude, the global benchmark, lost $1.32, or 2.3%, at $55.10 a barrel on ICE Futures Europe, for a 1.6% weekly fall.

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.2150 to lows near US$1.2075 and was near the lows at US close. The Aussie dollar fell from highs near US77.70 cents to lows near US76.80 cents and was near US77.00 cents at US close. And the Japanese yen fell from near 103.60 yen per US dollar to near JPY103.90 and was around JPY103.87 at US close.

European Markets

European sharemarkets fell on Friday on fears of tighter lockdowns and slow vaccine shipments across the continent. The pan-European STOXX 600 index eased 1% from 11-month highs to

be down 0.8% on the week. The German Dax index lost 1.4%, and the UK FTSE index fell by 1.0%. In London trade shares in Rio Tinto fell by 3.0% and shares in BHP fell by 3.3%.

Asian Markets

The Japanese Nikkei ended lower, dragged by declines in auto stocks, as concerns continue over the pace of a recovery from the Covid-19 pandemic. The Nikkei Stock Average fell 0.6%.

China’s major stock benchmarks ended the session with slight gains, as muted trading persisted after a strong New Year rally in the past weeks. The benchmark Shanghai Composite Index edged up 0.47 point while the Shenzhen Composite Index was up 0.3%. The ChiNext Price Index eked out a gain of 0.77 points. The food and beverage sector, together with consumer-services providers such as tourism and education companies, were the top losers, while banks strengthened to lend support.

How long will the EURUSD be falling? Forecast as of 18.01.20

What will signal the end of the EURUSD correction? The ECB meeting? Joe Biden’s inauguration? The Fed meeting? Each of these events could discourage euro bears. Let us discuss the Forex outlook and make up a trading plan.

Weekly Euro fundamental forecast 

The US stock market is to face turmoil amid the US corporate earnings reporting season. The euro-area economy is likely to slide into a double-dip recession, and the ECB could discuss a possible monetary stimulus expansion at the meeting on January 21. The new Treasury secretary Janet Yellen will make clear the U.S. doesn’t seek a weaker dollar. The EURUSD bulls are discouraged, and the pair featured the worst weekly drop since October. After all, there is a good chance to buy when everyone else is selling.

In the week ended January 12, the US hedge funds boosted their dollar shorts up to the highest levels since 2018. Of course, many former EURUSD bulls, scared by the correction, turned into bears. However, Goldman Sachs still suggests that the dollar is overvalued, the Treasury nominal and real yields are low, and the global GDP should rapidly recover this year. All these factors will press the US dollar.

What will signal the end of the EURUSD correction? The ECB meeting? Joe Biden’s inauguration? The Fed meeting? Each of these events could discourage euro bears. Let us discuss the Forex outlook and make up a trading plan.

Weekly Euro fundamental forecast

The US stock market is to face turmoil amid the US corporate earnings reporting season. The euro-area economy is likely to slide into a double-dip recession, and the ECB could discuss a possible monetary stimulus expansion at the meeting on January 21. The new Treasury secretary Janet Yellen will make clear the U.S. doesn’t seek a weaker dollar. The EURUSD bulls are discouraged, and the pair featured the worst weekly drop since October. After all, there is a good chance to buy when everyone else is selling.

In the week ended January 12, the US hedge funds boosted their dollar shorts up to the highest levels since 2018. Of course, many former EURUSD bulls, scared by the correction, turned into bears. However, Goldman Sachs still suggests that the dollar is overvalued, the Treasury nominal and real yields are low, and the global GDP should rapidly recover this year. All these factors will press the US dollar.

Dynamics of USD and dollar speculative positions

Of course, when the consensus forecast is clear, and the greenback net shorts are so high, the EURUSD correction must start. Nonetheless, the majority is not always correct. To resume the uptrend, the pair should first get rid of the ballast. The current information environment encourages doubting traders to exit longs. When they sell, somebody buys, don’t they?

In my opinion, the leading risk factor for the euro in the next week or two may be the drawdown of the S&P 500. In terms of P/E, the stock index is overvalued (22.65 with an average of 17.84 over the past 5 years), and the US corporate earnings reporting season will force some bulls to exit the longs. Janet Yellen’s speech on January 19 should also be associated with the White House’s desire to prevent turmoil in the US stock market. If the Treasury nominee abandoned the strong dollar policy, the panic would push the greenback up and crash the S&P 500.

I do not think the ECB will discuss the QE expansion amid the euro-area double-dip recession. Yes, the ECB officials used to hint at an additional monetary stimulus if the situation deteriorates and there are new lockdowns. However, the bond purchases’ monthly pace decreases, and Bloomberg experts expect the euro-area GDP to rapidly rebound in the second quarter. Furthermore, Christine Lagarde, ahead of the ECB January meeting, says it is not the right time to discuss the tightening (!) of the monetary policy yet.

Weekly EURUSD trading plan

Obviously, the EURUSD correction is still likely to develop. I am interested in the moment when the major currency pair will stop falling. Will it be the ECB meeting or the Fed meeting? The euro may resume rising after Joe Biden’s inauguration. The market should return to the normal state after the president-elect assumes the duties of the position. In this case, the US dollar will lose one of its primary benefits – uncertainty caused by Trump. I won’t recommend catching falling daggers, so I suggest entering buy trades only after the euro closes above the key resistance levels of $1.208, $1.2125, and $1.215.


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