6 Reasons Behind Gold’s Recent Climb

From a technical perspective however, a near-term pullback may be healthy and necessary in order to clear the path for further gains. After all, its 14-day relative strength index has been flirting with the 70 mark, which typically denotes overbought conditions.

That isn’t to take anything away from spot gold’s start to the trading week – one that gold bulls will be savouring.

Bullion has punched decisively above its 200-day simple moving average, having built on a series of higher highs since forming a double bottom in March, even threatening to fall into a bear market (20% drop from its record high). It dipped below the $1680 line on a couple of occasions in March, only to go on and advance by more than 9% since.

“Perhaps most importantly, gold prices this week have broken out of the downtrend it has adhered to since posting its record high back in August 2020.”

Why are gold prices climbing?

1) Investors’ desire to hedge against inflation
The precious metal is traditionally seen as a way to preserve one’s wealth during times when the prices of goods and services climb higher, eroding consumers’ purchasing power along the way. With markets having grown more concerned about the prospects of faster US inflation, it has helped boost gold prices.

2) The weaker dollar
Gold tends to have an inverse relationship with the US dollar. In other words, as the buck goes up, gold goes down, and vice versa. With that in mind, the greenback has been declining for a third consecutive day, with the dollar index (DXY) falling by about one percent since last Thursday.

3) Stabilizing US Treasury yields
Recall throughout the first quarter, Treasury yields spiked higher which roiled various asset classes, including the zero-yielding yellow metal. However, of late, 10-year Treasury yields haven’t strayed too far away from the psychologically-important 1.60% line over the past month, while real rates on the same tenor are falling back deeper into negative territory. All that has created a more conducive environment for gold to explore more of its upside.

4) Volatility in cryptocurrencies
In recent months, markets had been questioning gold’s suitability as an inflation hedge, with some segments of the market apparently preferring alternative assets. However, given the volatility seen in the likes of Bitcoin of late, it appears that investors are flocking back towards an asset that has stood the test of time.

5) ETF inflows
The flow of funds in and out of gold ETFs have had a major say on spot prices. According to Bloomberg data, these bullion-backed ETFs have been adding on troy ounces of gold for a 7th straight day, which is the longest streak of additions since 6 January. Although on a year-to-date basis these ETFs have net sold about 6.63 million ounces of the precious metal, recent purchases suggest that investors are coming round after a tumultuous Q1.

6) A dovish Fed
Policymakers at the world’s most influential central bank, the Federal Reserve, have repeatedly assured markets that the inflation surges are likely to be temporary. Hence, the Fed is in no rush to pull back its support for the financial markets, nor bring forward any US interest rate hike. Although markets took some time to buy into that messaging, the repeated assurances by Fed officials have enabled gold prices to climb higher.

What else could move gold prices this week?

  • The minutes from the latest FOMC meeting, to be released on Wednesday, could offer more clues about the Fed’s inflation outlook. More signs that the Fed is willing to tolerate an inflation overshoot could spur on gold bulls.
  • Thursday’s weekly US jobless claims could be key as well. Another better-than-expected reading on the labour market could prompt investors to raise their expectations for faster US inflation, adding to gold’s gains in the process.
  • The rest of the week is also set to feature more speeches and appearances by Fed officials. Any hint about the Fed’s outlook on the US economy and consumer prices, and the eventual policy response by these central bankers, could also move gold prices and the dollar.

Could we see $2000 gold?

Markets are currently pricing in just an 8.4% chance that spot gold would breach the $2000 mark by the end of this quarter.

While there appears to be plenty of tailwinds in play at the moment, gold prices still have another 7% to make up for before reaching that psychologically-important mark.

“Gold bulls would need a significant ramp up in any of the 6 reasons listed above in order to close that gap and achieve the $2000 handle once more.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Reopening Optimism vs. Inflation Fears

Despite the buy-the-dip action in the latter half of last week, benchmark US stock indices remain off their respective record highs:

  • Dow Jones = 1.14% lower since 7 May
  • S&P 500 = 1.39% lower since 7 May
  • Nasdaq 100 = 4.62% lower since 16 April

“Investors are still having to digest the prospects of the global economic recovery.”

China continues to take significant strides into the post-pandemic era, registering year- on-year gains in April for industrial production (9.8%) and retail sales (17.7%), while the unemployment rate moderated further to a better-than-expected 5.1%.

Across the Pacific, investors witnessed a lower-than-expected print for April retail sales data, suggesting that the easiest parts of the US economic recovery are over. The world’s largest economy may have to slog the rest of its way into the post-pandemic era. April’s major US economic prints, from nonfarm payrolls to inflation figures, bamboozled many economists.

“This suggests a bumpy ride ahead for risk assets, as markets remain sensitive to the shifting narrative surrounding the global economic recovery, and the outlook for central bank policy adjustments.”

Here’s what could influence market sentiment this week:

Monday, May 17

  • Fed speak: Fed Vice Chair Richard Clarida, Atlanta Fed President Raphael Bostic

Tuesday, May 18

  • Fed speak: Dallas Fed President Robert Kaplan, Atlanta Fed President Raphael
  • Bostic
  • Eurozone GDP

Wednesday, May 19

  • FOMC minutes
  • Fed speak: St. Louis Fed President James Bullard, Atlanta Fed President Raphael
  • Bostic
  • US President Joe Biden speech
  • CPI: Eurozone, UK

Thursday, May 20

  • China loan prime rate
  • ECB President Christine Lagarde speech
  • US weekly jobless claims

Friday, May 21

  • Fed speak: Atlanta Fed President Raphael Bostic, Dallas Fed President Robert
  • Kaplan, Richmond Fed President Thomas Barkin
  • PMIs for US, Eurozone, UK
  • UK retail sales

The reopening battle (GBPUSD)

Today, the UK will embark on step three of its 4-step “roadmap out of lockdown”, removing more of its social distancing measures. Across the pond, New York City, New Jersey and Connecticut will also resume more economic activities over the coming week.

“It remains to see which is the stronger force: the optimism surrounding the UK economic recovery which has boosted the pound, or the US inflation fears that have helped the dollar regain ground.”

That could determine whether GBPUSD can keep its head above the psychologically-important 1.40 level in the coming days.

Break it up you two (EURUSD)

While many of us remain socially-distanced, the 50-day and 200-day simple moving averages for EURUSD were hugging each other all of last week, only for the 50-SMA to start pulling away above its 200-day counterpart.

“Such a technical event could herald more gains for the world’s most traded currency pair.”

Stronger-than-expected economic data out of the Eurozone this week could serve as the fundamental catalysts for more euro gains, as long as the dollar behaves and Treasury yields don’t go on another surge.

Commodity spotlight – Gold

Gold is currently testing its 200-day simple moving average as a resistance level, creating a larger gap above the psychologically-important $1800 mark. However, with its 14-day relative strength index flirting with overbought levels once more, a near-term pullback could be in order.

The latest FOMC minutes to be released this week, along with the scheduled Fed speak, could offer more clues about policymakers’ views on the US inflation outlook.

Further gains for the greenback on rising inflation fears could drag bullion back to sub-$1800 levels again.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

A Sea Of Red

Prospects of sustained higher inflation can depress stock prices by lowering the real returns from dividends as interest rates are raised. Gold and oil are being sold too while Bitcoin is trading below $50,000 after it was down nearly 10% overnight after Elon Musk revealed Tesla would no longer be accepting the cryptocurrency as payment for its vehicles.

Rising rates means bond yields go up and the 10-year US Treasury is holding its gains from yesterday trading around 1.70%. This is currently also supporting the dollar with the DXY approaching 91 and the 100-day moving average just above here, which will act as solid resistance.

Buy the dip?

Stock market bulls have been euphoric in recent weeks with record high prints in many of the main global market indices made as recently as last week. But there has been a lot of internal rotation going on with the Dow and its breadth of industrial and financial stocks holding up better than the tech-laden Nasdaq. Ultimately, those stocks pegged to the economic cycle and reopening have now priced in much of the recovery, so valuations have certainly become “frothy”.

The bullish trendline from the November low in the Dow comes in around 33,175 and along with the 50-day moving average just above, should offer good support. There is still an abundant amount of liquidity in stock markets generally and any imminent tightening from the Fed seems unlikely.

USD/JPY perks up

USD/JPY is closely tied with the yield on the US 10-year Treasury bond and has touched mid-April levels today near to 110. If surging prices continue to push those yields up towards the March highs at 1.77%, then markets will see 110 and the cycle high at 110.955 in due course. The 50-day moving average offers first support to the bulls around 109 which is where the 23.6% Fib level of this year’s low to high move resides.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Inflation Angst Roils Markets

On Wednesday, the Dow fell 1.99% to register its largest single-day loss since January, wiping out all of its month-to-date gains, while the S&P 500 and the Nasdaq dropped by more than two percent respectively.

The MSCI Asia Pacific index followed suit on Thursday morning by erasing all of its year-to-date gains.

Markets spooked by higher-than-expected CPI

Wednesday’s US inflation data release shoulders much of the blame for extending this week’s selloff. The headline consumer price index increased by 0.8% compared to the month prior, which was its highest print since 2009. Meanwhile, the core CPI, which strips out food and energy, saw its highest reading since 1982 with a 0.9% rise month-on-month.

Global investors have been caught in the whirlwind of US economic data – from last Friday’s utterly disappointing nonfarm payrolls, to Wednesday’s higher-than-expected inflation prints – which have resulted in a volatility spike. Yesterday, the VIX index soared past its 200-day moving average to reach its highest levels since March.

Inflation reaction differs between markets and Fed … for now

The latest inflation prints are stoking market fears that runaway prices may crimp the ongoing economic recovery, while potentially forcing the Fed’s hand to intervene by reining back its support measures.

US stocks and Treasuries have tumbled under the weight of uncertainty over the inflation outlook and its implications on the Fed’s policy timelines. 10-year Treasury yields made another run for the psychologically-important 1.70% mark, which in turn lifted the US dollar along the way, while the breakeven rates on the same tenor have reached a new 8-year high.

Shortly after the April CPI figures were released, Federal Reserve Vice Chairman Richard Clarida sought to repeat the central bank’s view that such readings on inflation are set to be “transitory” and that policymakers remain some ways from paring down its asset purchases. It’s a message that markets clearly have a tough time swallowing, as they continue to question policymakers’ will to sit on their hands and ride this out.

More volatility ahead?

These concerns could be further stoked by the incoming US economic data releases, including today’s weekly jobless claims and PPI figures, as well as Friday’s announcements on retail sales, industrial production, consumer sentiment and inflation expectations.

Still, considering the extent of the reaction thus far, market moves may be relatively muted over the coming days. At the time of writing, the futures contracts for the Dow, S&P 500 and Nasdaq 100 are all in the green, as US equities try to nurse their wounds after the recent bruising selloff.

What is clearer is that the US inflation outlook remains the major theme in play for global markets, with investors ever willing to adjust their expectations, and subsequently their asset allocations, according to the shifting nuances in this ongoing debate.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Can GBP Hold On To Recent Gains?

However, even though momentum still points northwards, Sterling’s gains may have arrived too much too soon. After flirting with overbought territory earlier this week, with its 14-day relative strength index about to hit the 70 level, the currency pair is now easing slightly. Going by that technical indicator, this currency pair is perhaps biding its time before emulating the 1.42 level.

Looking on either side of the English Channel, EURGBP also appears stretched, with the currency pair closing below the lower bound of its Bollinger band over the past two days. As we have already witnessed on multiple occasions in recent months, a close below the lower bound is typically followed by a rebound for EURGBP. Should that happen once more, the currency pair could well test the 0.872 resistance level which has frustrated Euro bulls throughout April.

Keep in mind that the Bank of England announced last week that it will pare back its bond purchases by a billion pounds to 3.4 billion pounds per week (though not amounting to “tapering”, as per the central bank’s assertions). Recall also that the BoE sounded particularly upbeat after its policy meeting, upgrading its 2021 growth forecast to 7.25% GDP, with officials expecting UK consumers to spend twice as much of their pent-up savings.

All that had served as a tailwind for GBP, helping it advance against all of its G10 peers so far this month.

The Pound is also the best-performing G10 currency against the US dollar on a month-to-date basis.

Potential Pound catalysts today

From a fundamental perspective, the Pound is about face several key events that could influence its performance over the near-term:

  • Q1 GDP
  • March industrial production and trade deficit
  • BOE Governor Andrew Bailey speechMarkets are expecting a preliminary Q1 GDP contraction of 6.1% compared to the same period in 2020, while industrial production is forecast to have grown 2.9% year-on-year. Better-than-expected prints could help Sterling restore more of its gains from earlier this week, as markets price in the rosier outlook. However, a wider-than-expected trade deficit could fuel concerns over Britain’s funding gap, which some reckon could sour sentiment surrounding Sterling and prompt fund outflows from UK assets.

“It remains to be seen whether BoE Governor Bailey would offer any fresh clues about the central bank’s policy outlook, following his comments already made last week.”

Bigger event lies across the pond

Still, arguably the most important piece of economic data for global markets today is the US consumer price index for April. Markets are likely to pay less attention to the year-on-year figure, which is forecasted to post a 3.6% year-on-year increase, and instead focus more on the month-on-month comparisons (0.2% for headline CPI; 0.3% for core CPI).

Already it’s the angst surrounding the US inflation outlook that has roiled the markets. The Dow fell 1.36% on Tuesday to post its worst day since late February. US tech stocks have been whipsawed, commodities have surged to fresh record levels, and Treasury breakevens have advanced to multi-year highs.

“As the debate rages on and the US inflation outlook dominates market chatter, broad asset classes might just have to endure more volatility over the immediate term.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

US indexes fall as Big Tech tumbles

However, it only lasted a few hours, before the index ended 0.1% lower. From a technical perspective, it was ripe for a pullback, given that its 14-day relative strength index had breached the 70 mark which signals overbought levels.

Monday’s drop was far more noticeable in US tech stocks, with benchmark indexes dragged lower by tech megacaps:

  • Microsoft: -2.09%
  • Alphabet: -2.56%
  • Apple: -2.58%
  • Amazon: -3.07%
  • Facebook: -4.11%
  • Tesla: -6.44%

Note that these six stocks listed above account for nearly a quarter (23.3%) of the S&P 500’s total market cap, while accounting for more than half (56%) of the Nasdaq 100. In other words, the performances of these individual stocks, due to their sheer size, has a major impact on how the broader index performs.

Given the higher concentration of tech stocks on the Nasdaq 100, it was yesterday’s biggest loser of the three main benchmark US indexes. The Nasdaq 100 fell by 2.63% to post its biggest single-day loss since 18 March 2021.

The futures contract for the Nasdaq 100 has now broken below its 100-day simple moving average (SMA). Tech aficionados would point to the fact that, since the market rout in March 2020, this index’s foray below its 100-day SMA has been fleeting. After that single day loss of 3.13% on 18 March 2021, the Nasdaq 100 went on to advance by almost 10% and post a new record high a month later (16 April).

Some traders are raising their bearish bets on the Nasdaq 100, while pulling funds out of the sector. In short, tech stocks appear likelier to experience larger bouts of volatility compared to other sectors.

“Over the immediate term, with momentum now pointing firmly south, there’s likely to be more near-term declines for the Nasdaq 100 before the dust settles.”

Why are tech stocks falling hard?

This is likely due to two major concerns:

  1. Investors now deem the valuations of tech stocks to be overextended and are finding fewer catalysts that can spur these stocks higher.
    The Nasdaq 100 currently has a PE ratio of 35.63. That’s in contrast to the S&P 500’s PE ratio of 30, and the sub-27 ratio for the Dow. The higher the PE ratio, the more “expensive” the stock is deemed to be.
    Hence, with concerns that these valuations are no longer justifiable, in light of the anticipated reopening of the US economy, many investors have instead engaged in the “reflation trade” at the expense of tech stocks which had a remarkable 2020.
  2. Markets are also growing more concerned about the threat of faster US inflation.
    This is evident in the breakeven rates for 10-year US Treasuries, which hit a fresh 8-year peak on Monday before moderating slightly since.
    Despite the sluggish April US nonfarm payrolls figures released this past Friday, some investors are holding fast to the notion that the trillions of dollars in stimulus spent by the government and the central bank is bound to show up in the inflation data. Such an inflation overshoot might force the Fed to pull back its support for financial markets sooner rather than later. And when policymakers start signalling for sure that they’re ready to pare back their bond purchases, there is likely to be an almighty reaction in US stocks, especially sectors that are showing signs of too much froth like tech.

The jury is still out about the US inflation outlook, and what that might mean for the Fed’s timeline before unwinding its stimulus measures. While such uncertainty may well trigger further bouts of volatility in equities, steadier hands may find more gains to be had from US stocks in the interim.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Inflation All The Rage?

The April nonfarm payrolls came in at an utterly disappointing 266,000 instead of the one million figure that was expected. Yet US stocks merely shrugged off the jaw-dropping figures to climb higher, with both the S&P 500 and the Dow Jones Industrial Average posting their respective record highs on Friday.

Even Big Tech got in on the act, with the Nasdaq 100 climbing for a second straight day to move to within 2.3% of its highest ever closing price that was set on 16 April.

The futures contracts for all three major US stock indices (S&P 500, Dow, Nasdaq 100) are pushing higher at the time of writing.

“US stocks have demonstrated tremendous resilience by taking everything in its stride, supported by a better-than-expected US vaccination rollout and the Fed’s ultra-accommodative stance.,

Let’s see how they fare with this week’s key events:

Monday, May 10

  • Chicago Fed President Charles Evans speech

Tuesday, May 11

  • Fed speak: Fed Governor Lael Brainard, San Francisco Fed President Mary Daly,
  • New York Fed President John Williams
  • Germany ZEW survey expectations
  • OPEC monthly market report

Wednesday, May 12

  • UK GDP, industrial production
  • BOE Governor Andrew Bailey speech
  • Fed Vice Chair Richard Clarida speech
  • US inflation

Thursday, May 13

  • St. Louis Fed President James Bullard speech
  • US weekly jobless claims
  • Alibaba earnings (before US market opens)
  • Disney, Coinbase earnings (after US market closes)

Friday, May 14

  • Dallas Fed President Robert Kaplan speech
  • US consumer sentiment, industrial production, retail sales

Can Gold reach its 200-day SMA?

When the shocking US jobs report was released, investors fled to safe havens.

The buying of US Treasuries sent its yields lower. The strong correlation between Treasury yields and spot gold once again on full display last week, especially when the shocking jobs figures were released. 10-year yields screeched towards the 1.5% mark before erasing its declines, not before elevating gold prices onto a higher plain.

“In order for gold prices to climb even higher, investors must have stronger conviction about the precious metal’s traditional role as a hedge against inflation. Of course, falling Treasury yields and a weaker dollar would also go a long way for bullion bulls.”

And that brings us to the April US consumer price index due Wednesday.

Although this set of data is expected to be high due to the low base effect, given the abnormally low CPI figures throughout Q2 2020 due to the lockdown measures across the United States, the inflation outlook is very much central to global financial markets. Still, concerns about inflation making a roaring comeback could be taken down a notch after last Friday’s severely disappointing US jobs report.

“This could mean that gold bulls may have to depend on other factors, namely another decline in US yields, a softer dollar, or bouts of risk-off sentiment.”

Any of these events could help move bullion closer towards testing its 200-day simple moving average as a resistance level over the course of this week. However, with spot gold’s 14-day relative strength index now flirting with overbought levels, should prices lurch higher, that may trigger a pullback to clear some of the eventual froth.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

US Stocks To Climb On Jobs Optimism

The S&P 500 is now just 0.23% away from its record high, while the Dow Jones Industrial Average posted a fresh record high. The Nasdaq 100 ended a 4-day losing streak, though remains about 3% lower from its highest ever closing price recorded on 16 April.

“At the time of writing, the futures contracts are pointing to further gains for US and European stocks before the weekend.”

Nonfarm payrolls to validate risk-on sentiment

Yesterday, the US recorded its first sub-500k weekly jobless claims since the pandemic forced lockdowns across the country. With more Americans re-entering the workforce, that would help bring the US economy further along into the post-pandemic era.

“Such optimism has to be endorsed by today’s US nonfarm payrolls data, with markets forecasting that one million jobs were added in April.”

While anything above March’s print of 916,000 would still demonstrate an improvement in the US jobs market, a payrolls tally that’s higher than the-expected one million could well trigger another wave of risk-taking activities across global markets.

Investors will also be monitoring how US consumer price pressures would react to more slack being taken out of the jobs market. More importantly, markets want to know whether such inflation would persist once the low base effect fades, and force the Fed’s hands into adjusting its policy settings earlier than what these central bankers have conveyed to the markets so far.

“The Fed’s commitment to its ultra-accommodative stance is arguably the biggest theme in play at the moment, despite the concerted attempts by officials to play down any talk about a premature paring of its stimulus measures.”

Gold breaches psychologically-important mark

Spot gold has broken above the $1800 level for the first time since February, and is set to register its biggest weekly gain of the year so far. Gold’s climb has been aided by stabilizing Treasury yields, which in turn has led to a US dollar that’s been moderating since April, noting the inverse relationship between gold and the greenback.

The precious metal is now up by almost 7.8% over the past two months, since it registered its year-to-date low on 8 March, and has now broken above its 100-day simple moving average.

Real yields on 10-year Treasuries remain firmly in negative territory, while its breakeven rates are now around their highest since 2013. Such conditions have implored gold prices to pare its year-to-date losses, considering its trait as a zero-yielding asset.

“In order for gold to push higher from current levels, spot prices must carve out an extended presence above $1800 in order to encourage more bulls to get off the sidelines, especially those who cling to the belief that the precious metal is a worthy hedge against faster inflation.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EURUSD Forms Death Cross

EURUSD has formed what’s known as a “death cross”, whereby its 50-day simple moving average has crossed below its 200-day counterpart.

“Such a technical event typically heralds further declines.”

The currency pair is now testing the psychological 1.20 mark as a support level, failing which then the early-February low of around 1.1955 could be the next area of interest for bears.

May is typically a bad month for the euro. Over the past 10 years, the euro has averaged a 1.63% monthly decline versus the US dollar in May alone.

And in living up to such a track record, indeed the euro’s fortunes have been already dismal so far this month, with the shared currency weakening against most of its G10 peers so far this week.

Fundamentally-driven traders and investors will be eyeing these economic data releases due before the weekend:

  • Thursday, 6 May – Eurozone March retail sales data, Germany’s March factory orders
  • Friday, 7 May – Germany’s industrial production and external trade

“Still, better-than-expected readings of the Eurozone economy may only have a limited impact on the euro’s performance.”

Despite the rosier economic outlook for the EU, the US dollars appears to have a bigger say on EURUSD, with the greenback supported by stabilising US Treasury yields.

As for ECB President Christine Lagarde, who’s due to make a speech later today, she and her colleagues at the European Central Bank may not mind this softer euro. After all, a weaker currency would help buffer its economic recovery. A weaker currency can make Europe’s exports become more competitive on the global stage, while staving off inflationary pressures.

EURGBP climb loses steam

As for EURGBP, the currency pair’s attempts to break out of its downtrend has been capped by the 0.872 region, with the currency pair now finding support around its 50-SMA for the time being.

The Bank of England’s decision today is also in keen focus, although the central bank is unlikely to adjust its policy setting. Yet, the forward-looking investor will be monitoring the BOE’s economic outlook, considering the stellar progress the UK has enjoyed with its vaccination programme. The inoculation campaign’s early successes have already prompted UK Prime Minister Boris Johnson to expect the end of social-distancing measures by June 21. Such a move would be a massive boost to economic activity in the UK.

Such optimism may also encourage a hawkish tone out of BOE officials who may hint at an eventual paring back of its bond purchases today.

“Such hints may spur further gains in the Pound, potentially pushing EURGBP below its 50-SMA and on a path towards its mid-March lows of around 0.85377.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Earnings Preview: Uber to Drive Past Pandemic Woes?

Even as broader stock markets have been celebrating the reopening of the US economy, Uber’s stock prices were noticeably more sanguine. The stock has been relatively range-bound over the past two months, with the stock finding a close above $60 unsustainable since posting its highest ever closing price on 10 February. The stock has fallen by over 16% since.

Treasury Secretary Janet Yellen spooked some segments of the US stock market on Tuesday with comments that hinted at rising interest rates to curb an overheating economy. The selloff in tech stocks contributed to Uber’s share price closing below its lower Bollinger band.

That in itself may not be such a bad thing for technical traders.

Uber bulls might take heart from such a technical event because the last time the stock closed below the lower bound of the band, it went on to stage a massive rally of over 35% in just over two weeks! Also, over the past 12 months, the stock has found its forays below its 100-day simple moving average (SMA) to be fleeting.

Perhaps in that regard, this stock is akin to a coiled spring, raring to be propelled higher from such oversold conditions, with Wednesday’s announcement potentially serving as the trigger.

Though with momentum firmly pointing south, Uber appears in need of a major vote of optimism from the markets before we can say with conviction that a new record high is coming into view.

Is the pandemic finally in Uber’s rearview mirror?

For the quarter, markets are expecting Uber’s revenue to come in at $3.25 billion, which would mark a gradual increase from the past two quarters, though still 8.2% lower year-on-year.

The bigger boost likely came from some pandemic-era habits that have stuck around. Uber’s delivery services increased by 150% year-on-year in March, which helped the company post a record high for its monthly gross bookings!

Still, Uber’s net loss for Q1 is forecasted at around $1.05 billion, with investors wanting to know how such numbers might impact the company’s repeated forecasts of achieving profitability by year-end.

Winding road ahead

In its pursuit of profitability, Uber is also set to face some near-term challenges. The company has set aside an extra $250 million to lure drivers back with, as the demand resurgence outpaces the number of drivers who’s willing to return to such gigs. That figure could erode its bottom line in the coming quarters.

Also, Uber may have to contend with higher operating costs if regulators are to have their way. Just last week, US Labor Secretary, Marty Walsh, said that gig workers should be classified as “employees”, which raises the prospects of the likes of Uber being saddled with the compliance costs to employment law. In March, Uber reclassified all its drivers in the UK as “workers”, and the entitled benefits to drivers would cost the company about $300 million per year, according to Morgan Stanley estimates.

Raring to grow

Still, it’s not all doom and gloom for Uber’s outlook.

Besides riding on the global economic reopening, Uber plans to also aggressively grow its delivery services across the US over the coming months, reportedly in partnership with GoPuff, a startup that focuses on deliveries. Such a move would help bolster its deliveries offerings, following its $2.65 billion acquisition of Postmates last year.

There are also plans to roll out Uber Eats Germany, expanding its foray on the continent beyond existing markets in Spain, France, Poland, and the UK. Uber is also partnering with a London-based EV maker to produce cars for ride-hailing by Q3 2023. Such ambitions could help Uber diversify its income streams, both geographically and also across varying segments.

How could Uber’s shares react post-earnings?

Markets think that the stock could move by 8.43% when the US cash session reopens after Uber’s Q1 earnings have been released. Uber’s shares already gained 3.6% in extended trading on Tuesday, climbing alongside the stock prices of its rival, Lyft, which announced its own results after markets closed.

Those who believe in Uber’s long-term prospects must gain enough critical mass in order for the stock to hit a new record high. At least for the near-term, investors can take heart that, as the Covid-19 vaccine continues permeating major economies, that should help bolster Uber’s core business as people grow more comfortable hopping back into an Uber for their trips back to work, school, or out about town.

Written on 05/05/2021 06:00 GMT by Han Tan, Market Analyst at FXTM

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Dollar To Be Weighed Down By Dovish Fed

The dollar’s declines come as Fed Chair Jerome Powell reminded markets that the US economic recovery needs to be more equitable, with almost 1 out of every 5 of the lowest-paid workers in America still unemployed since the pandemic broke out over a year ago. Powell’s comments prompted some segments of the markets to walk back expectations that the Fed could start removing its support for financial markets sooner than expected. The benchmark 10-year Treasury yields moderated back below the psychologically-important 1.60% mark on Monday, which in turn prompted a softening of the dollar.

Monday’s lower-than-expected readings for the final Markit US manufacturing PMI and the ISM manufacturing print, which registered 60.5 and 60.7 respectively, also underwhelmed dollar bulls. Compare the US data points against the latest economic indicators out of Europe on Monday. Germany’s March retail sales far exceeded market expectations, while the Markit Eurozone manufacturing PMI posted a record high.

Noting that the euro accounts for 57.6% of the DXY, the euro’s gains against the dollar heaped downward pressure on the dollar index. EURUSD is currently testing its 100-day moving average for support.

Meanwhile, despite the Pound’s climb yesterday, GBPUSD remains very much rangebound, with the 1.40 psychological level proving a tough nut to crack. With markets expecting a 60.7 print for the UK’s Markit manufacturing PMI announcement later today, a positive surprise could help lift Sterling higher. The Pound accounts for 11.9% of the DXY, hence Sterling gains tend to exert downward pressure on the DXY.

The buck has clearly started off the new month on the back foot against its G10 peers, and could continue being weighed down by dovish Fed commentary.

The slate of speeches by Fed officials over the coming days could force further moves in the greenback:

Tuesday, May 4

  • San Fran. Fed President Mary Daly
  • Minneapolis Fed President Neel Kashkari

Wednesday, May 5

  • Chicago Fed President Charles Evans
  • Cleveland Fed President Loretta Mester

Thursday, May 6

  • Dallas Fed President Robert Kaplan
  • Cleveland Fed President Loretta Mester

“The far-reaching impact of the Fed’s next policy move extends beyond major currencies. US stocks have also been swaying to such shifts in market expectations.”

On Monday, the reflation trade made its presence known, with the Dow Jones Industrial Average gaining 0.7% while the Nasdaq 100 fell by about 0.5%.

Investors bought up stocks in sectors that stand to benefit from the US economic reopening, such as energy, materials and industrials. Meanwhile, the S&P 500’s consumer discretionary sector was weighed down by the likes of Amazon and Tesla, as investors shy away from these pandemic-era darlings.

As long as market participants continue pinning their hopes on the global vaccination drive that is set to bring the world out of the pandemic, and worry less about the nagging concerns in the likes of India and Southeast Asia, that could ensure more legs for the reflation trade. As such, the tech-heavy Nasdaq 100 could underperform in the interim, with the index still trying to shed its tag of having too-rich valuations.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: US Jobs Report Could Move Markets

Perhaps it’s prudent to consider the average performance of the S&P 500 over the past 20 years. For the month of May, the S&P 500 averaged a gain of 0.38%. While it’s the lowest average monthly climb, it still beats the average losses seen in other months over the past two decades:

  • January: -0.05%
  • February: -0.58%
  • March: 0.46%
  • April: 2.53%
  • May: 0.38%
  • June: -0.62%
  • July: 1.19%
  • August: -0.15%
  • September: -0.77%
  • October: 1.07%
  • November: 2.19%
  • December: 0.72%

“The historical averages suggests that who do sell out of US stocks in May could be leaving some profits on the table.”

In fact, the month of May has seen the S&P 500 register a monthly advance in 7 out of the past 8 years.

Although the first full week of this new month is set to begin on a quiet note, with several major markets closed for a holiday on Monday, there are still several notable events in store that could shake global financial markets:

Monday, May 3

  • China, Japan, UK markets closed
  • Manufacturing PMI for US, Eurozone, etc.
  • Fed Chair Jerome Powell speech
  • Tuesday, May 4

  • China, Japan markets closed
  • RBA policy decision
  • Fed speak: San Fran. Fed President Mary Daly, Minneapolis Fed President Neel Kashkari
  • Wednesday, May 5

  • China, Japan, South Korea markets closed
  • Fed speak: Chicago Fed President Charles Evans, Cleveland Fed President Loretta Mester
  • Uber Q1 earnings (after US markets close)
  • Thursday, May 6

  • BOE rate decision
  • ECB President Christine Lagarde speech
  • Fed speak: Dallas Fed President Robert Kaplan, Cleveland Fed President Loretta Mester
  • US weekly jobless claims
  • Friday, May 7

    • China exports
    • US April nonfarm payrolls

    “The Fed still holds arguably the biggest influence over how global equity markets would perform over the coming months.”

    Despite the repeated assurances by Fed officials that the US central bank will maintain its ultra-accommodative policy stance, yet the forward-looking nature of the markets demands that investors and traders try and pre-empt when US policymakers would pare back its bond purchases before eventually raising US interest rates.

    Hence, the speeches by Fed officials slated for the coming days could harbour more clues about the US monetary policy outlook. Fresh from last week’s FOMC meeting, investors and news reports would be eager for fresh clues about what may have been discussed before deciding to leave US interest rates floored at near-zero levels.

    Better jobs recovery could hasten Fed policy tweaks

    Amid such a backdrop, this week’s data releases pertaining to the US jobs market would be in particular focus. Better-than-expected readings for Thursday’s US weekly jobless claims, and also for the April US nonfarm payrolls print, due Friday, could inject more optimism into stocks that are set to benefit more from the US economic recovery.

    “Gains in energy and financial stocks could help the S&P 500 create a bigger gap above the psychological 4,200 mark. However, should the market narrative center on fears that the Fed would be pushed closer to pulling back their support for financial markets due to the recovery in the US economy, that could see a notable pullback towards the 4,120 support level for this blue-chip index.”

    At the time of writing, the futures contracts for all 3 major US benchmark indices are climbing, suggesting a positive start to May for equities. Still, markets have little qualms paring some of their risk exposure upon news this week that the Covid-19 pandemic could delay the global economic recovery.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Wild, Wobbly, Or Whimpering Wednesday?

    Amid the slew of headline-grabbing events slated for Wednesday, markets are also contending with rising Treasury yields, with 10-year yields breaking above the psychological 1.60 level to hit its highest levels in two weeks. However, the VIX has pushed deeper into the sub-20 region, which suggests an expected calm in equities over the coming 30 days despite the potential volatility triggers lined up for today.

    The positive after-hours reaction to Alphabet’s blockbuster earnings report and its $50 billion share buyback announcement suggests some support for benchmark US indexes. However, that could be offset by the post-market declines in Microsoft’s stock prices despite its better-than-expected Q1 results.

    Fed unlikely to rock the boat

    The FOMC is widely expected to leave its policy settings unchanged at today’s meeting, with Chair Powell likely to stick to his script and pledge the Fed’s persistently accommodative stance.

    “Yet markets are ready to pounce on even the slightest hint of policy normalization amid an economic recovery that is gaining more and more traction.”

    The onus is on the Fed to clearly convey its intentions for QE tapering and rate hikes, or risk whipsawing markets into a frenzy. While such commentary is likely still some way out, that isn’t stopping investors from already framing their expectations for such eventualities for US monetary policy, especially if the hard data continues to show the US taking bigger strides into the post-pandemic era. Thursday’s release of the US Q1 GDP and the weekly jobless claims print could buffer the optimistic outlook for the US economy, while also feeding into the market’s expectations for the Fed’s eventual policy adjustments.

    Tax hike fears loom over Biden’s speech

    When US President Joe Biden addresses Congress for the first time as POTUS today, investors won’t just be considering the implications of his “American Families Plan” on the US economy, but also on how such spending plans are to be funded. Since last week, investors have been mulling the prospects of a capital gains tax hike, alongside the already-proposed corporate tax increase, which could have a dampening effect on bullish sentiment surrounding US equities moving forward.

    “While the S&P 500 and the Dow are still likelier to post fresh record highs over the near-term, the tech-heavy Nasdaq could be particularly weighed down considering that Big Tech appears to be prime targets for when the tax man comes a calling.”

    Oil slips after OPEC+ decision to stay the course

    Both Brent and WTI futures are paring some of Tuesday’s gains, after OPEC+ decided to press on with restoring more of their supplies over the next 3 months. The alliance appears confident that global supply-demand conditions can absorb the additional barrels, despite the persistently disconcerting developments surrounding the Covid-19 pandemic in major economies such as India and Brazil.

    “The incoming supplies indicates that $70 Brent is one step too far for the time being, barring surer signs that more countries can earnestly partake in the global economic recovery.”

    The continued rollout of the vaccine, coupled with the eventual loosening of Covid-19 curbing measures, are needed to justify to gradual rise in oil production. Markets must also continue believing that the global demand recovery remains on track in order to keep Brent prices above its 50-day moving average.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Tesla Stocks Fall After Hours Post-Q1 Earnings

    After US markets closed on Monday, the electric vehicle maker reported its highest-ever quarterly net profit (non-GAAP net income) of over $1 billion. The company reported its 7th consecutive quarterly net profit, which was helped in part by the $101 million the company made selling Bitcoin during the period.

    “Adjusted earnings per share of 93 cents whopped analysts’ estimates of 80 cents!”

    Meanwhile, the company’s revenue of $10.39 billion for the quarter marked a 74% increase compared to the same period last year, while only slightly missing analysts’ estimates for $10.41 billion. Tesla also delivered 184,800 cars around the world during the first 3 months of 2021, which is still about 4000 more vehicles delivered during the quarter prior (Q4 2020).

    Yet, Tesla’s share price fell by as much as 3.1% in after-hours trading.

    Seems like Tesla shareholders, as well as market participants at large, need more convincing before ploughing back into the stock. As of yesterday’s close, Tesla’s share price remains about 16.4% below its highest-ever closing price on 26 January 2021.

    From a technical perspective, Tesla appears to be finding support from its 50-day simple moving average. The stock has been posting a series of higher highs and higher lows since March 5, the day which was the trough of its near-40% drop since breaching the psychologically-important $900 mark on 25 January.

    However, with momentum still pointing north, Tesla may still hold enough lure to entice more investors and traders into restoring its share price closer to its not-too-distant former glory.

    Tesla rides against headwinds

    As for the outlook for its core business, Tesla didn’t reveal a specific target for 2021 deliveries but stuck to its script of 50% annual growth in deliveries “over a multi-year horizon”. Tesla is also increasing its production capabilities, with new factories in Texas and Berlin slated to come online this year, while Gigafactory Shanghai is expected to continue expanding.

    Still, the EV-maker has to weather challenges, both near-term and long-term.

    The computer chips shortage felt across multiple industries worldwide was described as a “huge problem” by Elon Musk himself, who also expects the problem to persist through Q3 2021. Over the longer-term, there are other players jumping onto the EV bandwagon, from Rivian Automotive (which has the backing of Amazon) and Lucid Motors to traditional players such as Volkswagen. More entrants into the EV game threatens to erode Tesla’s market share and its financial future.

    Can Tesla retain its status as stock market darling?

    Considering Tesla’s waning cult status, evidenced by its 4.61% year-to-date gain which lags behind the double-digit performance for the S&P 500 and the Dow, the EV maker may have its work cut out to stir the same kind of fervour that the stock enjoyed throughout 2020.

    Looking ahead, Tesla may have to rely less on Bitcoin bets and regulatory credits to boost its top and bottom lines, and more on its core business in order to entice fundamentally-driven investors.

    How could Tesla’s stock perform today?

    Historically, Tesla’s share price registers a 7.5% single-day absolute move (in either direction) after its earnings release. Markets had priced in a 9.43% move, either upwards or downwards today.

    “Such positioning suggests there could be a major move for Tesla’s share price when the US cash session opens on Tuesday, with investors having already had plenty of time to digest the company’s latest quarterly results.”

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Key Events This Week: Big Earnings For Big Tech?

    Monday, April 26

    • Tesla earnings (after US markets close)

    Tuesday, April 27

    • Bank of Japan rate decision
    • Alphabet earnings (after US markets close)
    • Microsoft earnings (after US markets close)

    Wednesday, April 28

    • US President Biden addresses joint Congress
    • Fed rate decision
    • ECB President Christine Lagarde speech
    • OPEC+ meeting
    • Apple earnings (after US markets close)
    • Facebook earnings (after US markets close)

    Thursday, April 29

    • Amazon earnings (after US markets close)
    • Twitter earnings (after US markets close)
    • US Q1 GDP, weekly jobless claims

    Friday, April 30

    • China PMI
    • Eurozone GDP, CPI, unemployment
    • US personal income/spending, consumer sentiment

    As I had mentioned last Thursday:

    “Corporate guidance for earnings growth over the coming weeks is likely to have an influential role in determining whether US stocks can roar higher. Investors want to ascertain whether earnings prospects are bullish enough to warrant another leg higher for US indices, and whether the Q1 performance has justified recent gains.”

    The same will be applicable for these Big Tech stocks that are scheduled to unveil their latest quarterly earnings this week.

    Note that Tesla, Alphabet, Microsoft, Apple, Facebook, and Amazon have a combined market cap of about $9 trillion. That’s more than half of the total value of the Nasdaq 100 index, which has a market cap of nearly $16 trillion. Hence, how these stocks move could have an outsized impact on the tech-heavy index this week. At present, markets are pricing in an average single-day move of 4% in either direction for each of these six stocks once US markets resume trading after their respective earnings releases.

    “A notedly optimistic earnings outlook from these tech behemoths could spur the Nasdaq 100 onto a new record high, considering that the index itself is less than one percent away from beating its 16 April peak.”

    Meanwhile, the futures contract is now edging its way back towards the 14,000 mark.

    Amidst all these headline-grabbing earnings releases, Joe Biden is also set to address Congress for the first time as the President of the United States. As he unveils more details about his ambitious spending plans, investors would also be anxiously awaiting details about how it would be funded.

    There’s been media reports last week about a doubling of the capital gains tax, adding to the proposed corporate tax hike announced earlier this month.

    “And with Big Tech companies front and center of the taxman’s sights, more of such details released this week could drag US tech stocks lower.”

    FXTM Social Media index to cross 700 and hit new record high this week?

    This index is evenly weighted between its 4 constituents, namely Facebook, Alphabet, Twitter, and Snapchat. Note that Snapchat already released its latest quarterly earnings after US markets closed on Thursday, 22 April. This social media company reported better-than-expected surges in its revenue and daily active users, which grew 66% and 22% year-on-year respectively.

    Such a performance pushed Snap’s share price up by 7.45% on Friday alone, which ended a losing streak for the 5 consecutive sessions prior.

    Friday’s surge in Snap’s stocks helped propel the FXTM Social Media index to its highest ever closing price before the weekend.

    “Positive guidance out of Facebook, Alphabet, and Twitter this week might see the FXTM Social Media index push above the psychologically-important 700 line before it reaches overbought territory.”

    However, should markets be grossly disappointed either by the latest quarterly results or what management has to say about the coming quarters, that could deflate this index until it tests its 50-day simple moving average as a support level once more. The 610-640 range may also prove to be a key area of interest to the downside.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    US Stocks Vexed By Tax Plan

    Such headlines moved markets into looking past the lowest weekly US jobless claims in a year, and perhaps prompted wealthier investors to book in some profits yesterday before the higher taxes kick in. They’ll surely be eyeing the official tax rate that POTUS will unveil before Congress on 28 April.

    Following the news by Bloomberg, the S&P 500 went on to register its biggest single-day drop since 18 March, falling by 0.92% at yesterday’s close. The Dow also declined, shedding 0.94%, led by the materials sector.”

    US tech stocks took a bigger hit yesterday, with the Nasdaq 100 falling 1.24% to drop below its February cycle highs.

    Big Tech companies are seen to be more exposed to the threat of higher tax bills.

    Noting that tech giants such as Apple and Microsoft have revealed overseas profits exceeding US$100 billion, they are seen to be prime targets to help fund the Biden administration’s spending plans. Recall also earlier this month, the Treasury Department announced plans to raise the corporate tax from 21% to 28%, although a compromised 25% is likelier to be the final outcome.

    Note that these are just proposals at this point in time, and have yet to be passed by lawmakers. Still, given the forward-looking nature of the markets, it hasn’t stopped markets from reacting to such risks. The Biden policy pipeline remains a key risk that global investors will have to continuously monitor.

    “Despite such bumps along the way, as highlighted in yesterday’s report, stock markets are still expected to explore more of their upside potential.”

    At the time of writing, the futures contracts for all 3 benchmark US indexes are edging higher.

    EURUSD little changed after ECB meeting

    The European Central Bank kept its policy settings unchanged at yesterday’s rate meeting, as widely expected, while ECB President Christine Lagarde said little to rock the boat. Lagarde stated that the central bank isn’t yet entertaining the thought of reining in its emergency bond-buying programme, amid green shoots of an economic recovery, buffered by higher vaccination rates and the prospects of 800 billion euros in fiscal stimulus being rolled out later this year.

    However, Lagarde did say that the ECB will keep a close eye on the shared currency, considering that a stronger euro could serve as a drag on import prices which would influence inflationary pressures onshore, while making European exports less affordable to its global customers.

    “Such commentary suggests that the euro might have a tough time matching its highs against the greenback from earlier this year, despite the softer dollar environment that we are witnessing currently. And given that the euro accounts for 57.6% of the benchmark Dollar index (DXY), a euro that is prevented from taking full advantage of the softer buck may in turn offer support for the DXY.”

    As things stand, the world’s most traded currency pair remains hemmed in by the psychological 1.20 level and its 100-day simple moving average (SMA).

    What are markets looking out for on Friday?

    Global investors will be eyeing the April preliminary PMI figures out of the US, UK, and the Eurozone today.

    These economic data are mostly expected to march further into expansionary territory, as denoted by a print above the 50 line, except for the Eurozone’s services sector.

    Even as they digest the latest developments surrounding the pandemic, and also the prospects of higher taxes in the US, market participants who still harbour a healthy appetite for risk-taking activities would be hoping that the optimism surrounding the global economic recovery would remain intact and help stock markets end the trading week on a positive note.

    “There remain enough reasons to expect further gains for risk assets, considering the continued rollout of the Covid-19 vaccine around the world, and the continued fiscal and monetary policy support across major economies.”

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

     

    Quiet Session, Sentiment Cautious

    Futures are very modestly better bid with Intel earnings on tap today ahead of the tech titans next week. Several upcoming headwinds are being cited by some analysts (“Sell in May and go away” and the delayed US tax season) but while the punchbowl is still very much on show, equity bulls can feast on the largesse of central banks for a little while longer.

    European stocks rebound

    The earnings season is going very well currently in Europe with results continuing to deliver better than expected operating earnings. The major Eurostoxx 50 index bounced back strongly yesterday with the 20-day SMA holding up prices nicely and today’s bid takes it above the start of the month’s consolidation range. Earnings expectations are high that bullish momentum will carry on, which means this year’s series of higher highs and higher lows can continue. A close above 4,000 further bolsters this view.

    BoC leads the way

    While no fireworks are expected from the ECB today with markets waiting for the June meeting and a potential scaling back of bond buying along with new staff forecasts, the Bank of Canada surprised markets yesterday with its hawkish stance. A taper in its QE program was on point but the bank brought forward the anticipated recovery (and closing of the output gap), thereby advancing the date of its first rate hike to 2022, a year earlier than previously thought. Growth estimates were also raised for this year.

    CAD got an immediate boost and with more tapering to come in the coming months and then potential moves in rates, the attractiveness for the loonie may only get stronger. Remember it’s the first major central bank to get on the path to normalisation and is in stark contrast to its neighbour, the Fed, who recently said there will be no rate moves until 2024!

    “USD/CAD needs to break the bottom of the recent range and yesterday’s low at 1.24586 before heading to the cycle low at 1.23638.”

    Of course, oil and CAD are highly correlated and any prolonged selloff in crude owing to demand issues from those countries experiencing rising infection rates may hold up the USD/CAD selloff.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Stocks Set To Continue Rising In Winding Journey To New Normal

    The buy-the-dip mantra helped tech stocks pare most of their losses from earlier this week, with the Nasdaq 100 moving back closer to the 14,000 psychological level at Wednesday’s close. The reflation trade was also evident in the mid-week price action, as gains in materials, energy, and financials pushed the S&P 500 higher while the Russell 2000 outperformed its blue-chip peers.

    Still, US futures are inching lower at the time of writing.

    It is only natural to expect markets to take a breather after posting a string of record highs this month.

    After all, technical indicators had been highlighting overbought conditions of late. But with the VIX index still around its long-term average, coupled with 10-year Treasury yields which extended their April declines to now fall below their 50-day moving average, such metrics points to a conducive environment for further stock market gains.

    Risk assets still has more upside

    Despite the worrying developments surrounding the pandemic involving major economies like Canada, Brazil, India, and Japan, investors are still hopeful that this resurgence of Covid-19 would not scuttle the global economic reopening.

    Risk assets are expected to remain resilient in the face of the virus’s global resurgence, even as new Covid cases hit a weekly record just last week, with the global vaccination campaign serving as the basis for such hopeful resilience.

    To be clear, such concerns are expected to have a dampening effect on markets and may well trigger more pullbacks in the markets as witnessed earlier this week, especially if virus-curbing measures stay enforced for longer and delays our collective move into the post-pandemic era.

    Markets had clearly been front-loading much of their optimism surrounding the global economic reopening, but what we’re learning is that the journey is far from a straight path. Investors and traders are set to continue reacting to such ebbs and flows, even as they maintain the overall upward tilt for risk assets, barring a material change in the global economic outlook.

    Earnings outlook to dictate stock market’s near-term performance

    Corporate guidance for earnings growth over the coming weeks is likely to have an influential role in determining whether US stocks can roar higher.

    Investors want to ascertain whether earnings prospects are bullish enough to warrant another leg higher for US indices, and whether the Q1 performance has justified recent gains.

    Netflix’s plunge on Wednesday shows that market participants have little qualms jerking back valuations that have clearly extended well beyond its fundamentals.

    Lagarde comments in focus as ECB leaves policy unchanged

    The European Central Bank is widely expected to stand pat on its policy settings today, with ECB President Christine Lagarde’s press conference likelier to offer up new clues that markets can latch on to. Investors will be eager to know how much runway is left for the ECB’s accelerated bond-buying programme, which was ramped up last month, before the central bank starts paring back its purchases.

    Any hawkish hints emanating out of Lagarde could spur more gains for the euro, allowing the bloc currency to add to its 2.7% in gains versus US dollar so far this month. Lagarde’s commentary over the vaccination efforts across the region, and also the prospects of joint fiscal stimulus buffering the EU’s recovery prospects, would be sieved by potential clues about the ECB’s policy bias.

    However, should a dovish Lagarde place more emphasis on the downside risks while stressing the need for those ramped-up asset purchases to be extended into the second half of 2021, that could prompt the shared currency to unwind recent gains and give up the 1.20 handle against the dollar for the time being.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Canadian Dollar Bruised Ahead Of BoC Decision

    The decision was made as the country continues battling Covid-19, especially in Ontario, which is Canada’s largest province and home to some 14.7 million people.

    The country recently had more new Covid-19 cases than the US for the first time since the pandemic hit. Ontario has been in a state of emergency since 8 April amid a third wave of cases. According to Bloomberg data, Canada has enough vaccines for almost 14% of its population, lagging behind the US and the UK which have enough to account for over 30% of their respective populations.

    Trudeau’s announcement apparently prompted the knee jerk reaction in USDCAD. The pair has eased off since, pulling away from overbought territory on the hourly chart.

    Zooming out to the daily chart, USDCAD has now breached its 50-day simple moving average (SMA) though remains unable to breach the 1.263 resistance level (as highlighted in Monday’s report) which has repelled any attempt by this pair to break higher since early March

    The recent drop puts the Canadian dollar in third place among the best-performing G10 currency against the US Dollar so far this year. The Norwegian Krone is still in first place, while the British Pound overtook the loonie in second place this week. Also on a year-to-date basis, the Canadian dollar had strengthened against all G10 currencies except for the NOK and the GBP.

    However, the CAD has weakened against all of its G10 peers on a month-to-date basis.

    From a fundamental perspective, the Canadian dollar’s strength in Q1 had been fuelled by the robust recovery in Canada’s economy. The country added 303,100 jobs in March, which was three times more than market expectations, while also being about 17% higher than the jobs added in the month prior.

    Canada’s economic fundamentals should be bolstered by the government’s recently-released budget; its first in two years. This past Monday, Prime Minister Trudeau released the government’s US$80.6 billion spending plan which would span the next three years, featuring over 200 new measures.

    “This prospects of increased spending, while noting Canada’s aim to keep its debt-to-GDP ratio in check, should also help the loonie take advantage of the softer greenback while keeping the overall downward trend in USDCAD intact.”

    Bank of Canada to make rate decision Wednesday

    With the economy apparently on firmer footing, the Bank of Canada could announce the paring back of its weekly bond purchases, from the current rate of C$4 billion down to C$3 billion, and may even comment about a potential rate hike sooner than 2023.

    “Should that happen, that could drive up Canada’s government bond yields even higher, which may then serve as a tailwind for the CAD. Such commentary could move USDCAD back below its 50-SMA and closer towards the 1.247 mark.”

    However, should the BOC adopt a dovish tone in light of Covid-19’s resurgence within its borders, that could surprise markets and trigger another round of weakness in CAD.

    “Such a dovish surprise could see USDCAD climb towards its 100-SMA and possibly even test the 1.2690 resistance line.”

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Dollar Demise Continues

    We’ve talked about seasonal trends previously with DXY peaking more or less bang on cue towards the end of March. Positioning is interesting and relevant as the latest futures report tells us that USD short covering has lost momentum. The decline in US bond yields has also fully justified selling in the greenback with Fed policy makers happy to stress that rate hikes are some way off, though the recent uptick in yields does warrant some attention.

    In the short-term at least, the majors are approaching some serious technical levels with:

    • JPY nearing 108
    • EUR through 1.20
    • and GBP above 1.40

    “It seems a lot of dollar positive news is firmly embedded in the buck while traders are only seeing upside in euro negative news for example.”

    As we move into the second half of the year, we may well finally see what many Wall Street analysts were predicting at the start of the year, with the DXY falling nearer to 89.00 as a synchronised global recovery takes shape.

    Stock market calm upset

    US stocks slipped off their record highs and European markets are currently mixed and modestly in the red. Tech led the selling with the Nasdaq down nearly 1% as eyes turn to some significant US companies who report this week like Intel and American Airlines, while we covered Netflix earlier today.

    Interestingly, the VIX picked up off its lows yesterday as the S&P500 traded around 16% above its 200-day moving average, a level that has spurred a selloff on numerous occasions in the last eight months.

    The calm in stocks is also seen in the Dow which has gone more than 30 days without a loss of 1%, the longest streak since just before the pandemic.

    UK jobs jolt

    Important UK labour figures were released earlier this morning with the unemployment rate surprisingly dipping to 4.9%, despite the winter lockdown. The furlough scheme is certainly proving its worth as a band-aid for the jobs market, but many economists predict the jobless rate will rise to north of 6% when the scheme finally unwinds in September. That much of the employment upheaval is in the consumer services sector makes it hard to predict when these jobs might come back, and this is a key question for many developed economies. The new EU-UK relationship will also be another factor in the equation.

    “Cable is consolidating its gains and rising for a seventh straight day, enjoying a rising EUR/USD as well as the strong data.”

    Traders have been waiting for the reopening effect and fast vaccine rollout to kick into GBP, so patience has very much been a virtue!

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.