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Renewed lockdown in Europe undermined oil price on Tuesday, the WTI crude…

Renewed lockdown in Europe undermined oil price on Tuesday, the WTI crude and Brent crude futures plunged 6.17% and 6.59% respectively

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Market Focus

US equity market suffered despite easing bond yields. The three big indexes were on the retreat. The S&P 500 index slumped 0.64%, with industrials and materials stocks led the decline.

Here are Bloomberg’s key takeaways from Janet Yellen and Jerome Powell House CARES act testimony:

  • The Fed expects a temporary increase in fiscal stimulus in the coming months. Powell repeated that the Fed will communicate well in advance when it gets closer to bond-buying tapering.
  • Powell said inflation to move up over this year, but it won’t get out of hand.
  • Yellen characterized asset-price valuations as elevated by historical metrics. Powell added that while “some asset prices are a bit high,” banks are highly capitalized. 
  • Powell doesn’t favor complete privacy about ownership of and transactions in a digital dollar. A system that relies on private governance or anonymous owners “would not be viable”.

Market Wrap

Main Pairs Movement

The dollar was gaining traction on Tuesday, the dollar index ramped up 0.64%. The rally may be motivated by external forces, rather than the US greenback itself. New Zealand government unexpectedly announced its move to fight rising house prices with a set of measures. The act will heavily hamper down the rentier class as the newly rolled out tax code makes housing speculation less profitable. To be specific, capital gains on property investment will be taxed for any property held less than 10 years, compared to the previous 5 years. The bigger implication is perhaps pandemic resilient or recovered countries like New Zealand are already getting their hands on reversing the consequence of a too loosen monetary policy. This synchronized expectation in turn dragged down currency crosses like the Aussie and Cable, where similar steps are followed.

The eurodollar plummeted 0.2% as investors are still digesting the Turkey headline. Moreover, lockdown extension from Germany and Netherlands further weighed down on the shared currency. There is little sign of backdown from infection figures in Germany, Chancellor Angel Merkel noted “case numbers are rising exponentially thanks to the British variant of the virus, new British variant of coronavirus means we are effectively in a new pandemic. [lockdowns] will be extended until Easter.”

Renewed lockdown in Europe undermined oil price on Tuesday, the WTI crude and Brent crude futures plunged 6.17% and 6.59% respectively. Investors are worried that the sluggish EU vaccination campaign will fall further behind amid the resurgence of infections within the Euro Zone, thus decelerate the recovery in oil demand.

Technical Analysis

EURUSD (Daily Chart)

Eurodollar looks to close the day with a solid bearish engulfing. Price was very close to climbing back above 1.1954 during yesterday’s session, but today’s recovering dollar strength killed bulls’ hope. More importantly, the double-top pattern is manifesting itself as price broke through the neckline of 1.19. As we noted in the previous analysis, this pair will exit the current consolidation phase, and the bears will reclaim the driver seat. It is unsurprising to see a retaining selling bias given the breakout from an ascending trend. On the downside, the nearest contestant support lies around 1.1778, following by a long-standing 1.163. We are also seeing a bear revival from the MACD.

Resistance: 1.19, 1.195, 1.2215

Support: 1.1778, 1.163

NZDUSD (Daily Chart)

The long-awaited breakout on the Kiwi finally happened, after stuck inside a tight range between 0.7117 and 0.725. Price relentlessly plunged 2.14% on the news that the New Zealand government will fight rising house prices with a new set of policies. It is falling onto 50% Fibonacci of 0.7, which is also significant psychological support. We witnessed a strong bounce last time when this handle was contested, thus it is reasonable to induce a similar action this time around. However, if the price fails to pull away from 0.7, then we suspect the starved bear will take the price down to 0.69.

Resistance: 0.7117, 0.725, 0.7465

Support: 0.7, 0.69, 0.6768

XAUUSD (Daily Chart)

Gold is still clinging to the descending trendline, along with the mid-line of Bollinger Band. Price is backed to a corner, and awaits signals from the Treasury market. That being said, we remain a bullish stance on the precious metal since stimulus checks are in the rearview mirror, focus has returned to Fed’s dovish view and upcoming Treasury auction, which should eke out Gold. We are seeing bounce-offs from the frequently visited $1727 soft support, any decisive upward drift could encourage bulls to pile in. At this point, investors should be prudent to wait for a clear breakout from either side.

Resistance: 1765, 1839, 1872

Support: 1727, 1691, 1680

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Turkish Lira plunged as much as 15% against the US dollar after…

Turkish Lira plunged as much as 15% against the US dollar after Turkish President Erdogan abruptly fired the head of the central bank

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Market Focus

Nasdaq 100 climbed as high as 2% as the US Treasury yields slid, providing a tailwind for equity markets. Markets also focused on the Federal Reserve’s SLR decision. The Fed is letting expire at the end of March a temporary change to its SLR requirement for banks. The worst scenario is that some banks have to issue preferred to make room for the increase in deposit, potentially resulting in major selloffs.

Turkish Lira plunged as much as 15% against the US dollar after Turkish President Erdogan abruptly fired the head of the central bank, putting the Lira for its worst single-day decline in nearly three years. Ngai Agbal, who was appointed in November, was the country’s third central bank governor got removed in less than two years. And the reason for the removal was an advocate of lower rates. Agbal’s removal results in a 200 basis- point interest rate hike by the central bank. The Lira’s freefall, adds to Turkey’s inflation problem and also risks worsening currency mismatches. Moreover, the rise in external borrowing costs is going to make it harder for Turkish borrower to roll over their external debts.

Market Wrap

Main Pairs Movement

The Aussie climbed to its highest in nearly two weeks following a drop in the jobless rate. The Aussie rose as much as 0.4% today as it was bought by leveraged funds buying for the second time in a day in the wake of a better-than-expected jobless report. Jobless data dropped to 5.8% from an expected 6.3% whilst full-time employment added 89.1k jobs.

The yellow metal, gold turned negative amid concern that the US Treasury yields might rise further even though the yields dropped nearly 1.7% today. Investors took close attention to the heavy slate of auctions with bonds getting pummeled recently amid an optimistic outlook for growth and inflation. As a result, potential gains in gold might not be enough to spur investors to close out bets.

EURUSD reversed its direction and turned in positive, up around 0.28% on the day at 1.1935. Weaker US Treasury yields today continue to drive the US dollar’s performance. On the other hand, the ECB has pointed out that it is ready to adjust all of its instruments to ensure that inflation moves in a sustained manner.

Technical Analysis

EURUSD (Daily Chart)

EURUSD has risen above 1.19 level as the US Treasury yields have dropped today, but still trapped in the descending channel on the daily chart. The pair has limited the bullish potential in the near- term as it needs to climb beyond around 1.2124 to give bulls a chance to happen. By rising above 1.2124, where the yearly ascending trend and short-term descending trend cross, the pair would trade above the 50 and 100 SMAs, giving it a chance to reverse from bearish to bullish. In the near- term, EURUSD is under downside pressure as the RSI indicator has not reached the oversold condition, giving rooms to further south.

Resistance: 1.1945, 1.2349

Support: 1.1695, 1.1492, 1.1290

GBPUSD (Four-Hour Chart)

Cable turns positive as the US Treasury yields trade lower today, resulting in a weaker US dollar. Cable has been setting higher lows since it hit a low of 1.3779 at the beginning of March. On the four-hour chart, the pair has rebounded back to the ascending trend, heading to the next resistance level at 1.3887(Fib. Retracement 23.6%.) Bulls are trying to come back as the MACD lines are getting narrowed even though the cable is currently trading under the 50 SMA; meanwhile, the RSI is still neutral, giving Cable rooms to move further.

Resistance: 1.3887, 1.3954, 1.4008

Support: 1.3779

XAUUSD (Daily Chart)

Gold continues to move up and down between the key resistance hurdle at 1746.91. In a bigger picture, gold is still trapped in the descending channel while trading below the 50 Simple Moving Average. However, in the near- term, the direction of gold is likely to be determined whether the resistance level can be broken. Gold has hovered around the area for a while, thus expecting to see a breakthrough as bullish momentums are very strong at this point. At the same time, the MACD indicator also lends support to the bulls while the RSI is still neutral, giving gold a chance to move forward.

Resistance: 1746.91, 1790.23, 1825.24

Support: 1676.89

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In response to Biden’s toughness, China accused “The US wasn’t qualified to…

In response to Biden’s toughness, China accused “The US wasn’t qualified to speak to China from a position of strength.”

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Market Focus

US equity market was mixed as investors weighed the risk of inflation with economic growth accelerating. The Dow Jones Industrial Index is down on a second consecutive day, dropped 0.77% on Friday. Meanwhile, the S&P 500 index pared its weekly losses, with communication stocks led the gain and financial and real estate shares fell behind. US 10-year treasury yield rose 0.55%.

The Federal Reserve will relax its Supplementary Leverage Ratio on banks to pre-pandemic level. In response to market panic back last March, the Fed had let banks exclude Treasuries and deposits in SLR calculation. However, this relief will lapse March 31 as planned, the Fed said in a Friday statement.

The first high-level talks between China and the US since President Biden took office quickly descended into recrimination. The largest two economies criticized each other over human rights, trade, and international alliances. In response to Biden’s toughness, China accused “The US wasn’t qualified to speak to China from a position of strength.” Despite the wide expectation of divergence in the first meeting, investors are growing concerns over the development in these fiery talks.

Here are Bloomberg’s key takeaways from BoJ monetary policy:

  • Will be flexible in keeping up its long quest to revive inflation that includes a wider-than-previously-thought movement range for bond yields.
  • The band around its 10-year yield target was around 0.25% on either side of zero.
  • Unveiled bank lending incentives and a plan to revise its three-tier reserve system if it lowered its target rates.
  • Economists described the move as a balancing act that allows the BoJ greater scope to buy few assets but also shore up the effectiveness and sustainability of its measures.

Market Wrap

Main Pairs Movement

Euro was on the back foot against the US greenback as US bond yield advanced to 1.74%. As the mutated coronavirus has taken hold in Italy, Prime Minister Mario Draghi pushed most parts of the country into another lockdown, set to expire in early April. The latest restriction will significantly deepen the current economic contraction. Thus, the Euro bears are here to stay.

Cable was the worst performer among its G-7 peers, dipped 0.4% on Friday. The Sterling was weighed down by the slowdown of its vaccination campaign. Around 38% of the UK’s population received the first dose of vaccine, but only 2.6% administered the second dose. Investors are concerned that slowing supply may derail exit from the current lockdown.

Aussie slipped 0.14% amid downbeat retail sales. Australian retail sales declined by 1.1% in February, missed an expectation of 0.4% growth. However, the commodity-linked is generally resilient to the rebounding dollar greenback, dipped only 0.23% weekly.

Gold continued to recover albeit higher bond yields, rallied 0.31%. We are witnessing a deceleration in sell-offs among the largest Gold ETFs. SPDR Gold ETF holding was essentially unchanged for the week of March 15th, whereas iShares Gold Trust holding only decreased 0.02 million ounces in the past two weeks. Perhaps, we could see some dip-buying as the non-yield metal is oversought recently.

Technical Analysis

EURUSD (Daily & Monthly Chart)

Eurodollar is undergoing a double-top trading pattern on the daily chart. To complete this pattern, the bears need a solid breakthrough from the neckline of 1.19. On the downside, the price would fall onto the nearest support of 1.1778, last seen last November. Conversely, resurgence to 1.195 resistance could offer bulls the chance to pile in and create momentum to reclaim 1.2. As we mentioned in the previous analysis, recent selling bias is a bigger retracement on the monthly chart, thus it is completely conceivable for the first scenario to play out itself. MACD slightly favors a bearish trend.

Resistance: 1.1954, 1.209, 1.221

Support: 1.1778, 1.163

AUDNZD (Daily Chart)

AUDNZD is trapped within an ascending triangle, and the price is clinging to the ceiling around 1.083. An ascending triangle usually points to a bullish trend. Yesterday’s solid long body candlestick has indicated demand for the Aussie is overwhelming compare to Kiwi. This is the bulls’ strongest contest to 1.083 resistance, and we expect sellers to surrender this level. Further in the north, the antipodean pair could eye for 1.093, possibly advance toward the 1.1 hurdles. MACD on the daily chart also lends support to the bulls.

Resistance: 1.083, 1.093, 1.1

Support: 1.064, 1.057

XAUUSD (Daily Chart)

Gold is still constrained by a descending trendline, which is in line with our forecast. However, the price seems to be sticky on the trendline, implying a diminishing pressure from this dynamic resistance. That being said, the market may take a breather from recent extreme bearishness on precious metal thanks to Federal Reverse’s dovish tone on Wednesday, thus reviving the risk-off tone. More observations are needed amid tentative market movement. If the price managed to stand above the downward trendline, then it would look to contest a 50% Fibonacci of $1765. Conversely, the bearish bias would persist and accelerate if bulls fail to retake the driver seat.

Resistance: 1765, 1839

Support: 1691, 1670, 1600

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