Gold Recovers as Worldwide Equites Sell Off

The worldwide equity selloff began overseas and then continued into the U.S. equities markets. At its low today the Dow Jones industrial average was down 900 points before recovering. The Dow gave up 614 points in trading today and closed at 33,970.47, resulting in a net decline of 1.78%. The NASDAQ composite lost 2.19% and is currently fixed at 14,713.9030. The S&P 500 lost 1.70% and is currently fixed at 4357.73.

gold sept 20

As of 5:56 PM EDT gold futures basis, the most active December 2021 contract is currently up to $13.30 and fixed at $1764.70. Silver did sustain a mild selloff closing lower by 0.41%, and after factoring in today’s decline of a little over nine cents, it is currently fixed at $22.245.

silver sept 20

Reuters reported that “Wall Street plunged on Monday as fear of contagion from a potential collapse of China’s Evergrande prompted a broad selloff and sent investors fleeing equities for safety.”

They also added that “the equity selloff in the United States was a result of concerns of solvency of the Chinese property group Evergrande. “Gold rose on Monday as fears about the solvency of Chinese property group Evergrande sparked a flight to safe-haven assets, but gains were capped by strength in the dollar ahead of the U.S. Federal Reserve’s policy meeting. Spot gold rose 0.5% to $1,762.66 per ounce by 1753 GMT. U.S. gold futures settled 0.8% higher at $1,765.40.”

The Chinese property to developers has accumulated over $300 billion in debt mostly with the Central Bank of China.

The Federal Reserve will meet tomorrow and begin September’s FOMC meeting, which will conclude on Wednesday. Market participants and traders hope to gain more clarity as to the timeline in which the Federal Reserve will begin to taper their monthly asset purchases of $120 billion (80 billion in U.S. debt and 40 billion in mortgage-backed securities).

There is genuine uncertainty as to what actions the Federal Reserve will take in regards to their current monthly asset purchases. Their asset balance sheet has swelled to above $8 trillion in assets. However, their primary focus has been upon maximum employment, a major component of their dual mandate which is maximum employment and annual inflationary levels of around 2%. They have let inflation run much hotter in lieu of achieving their maximum employment goal. Believing that the majority of the current level of inflation is transitory, the Federal Reserve has let inflation run to 5.3%, based upon the latest CPI numbers released last week.

However, the most recent jobs report was extremely disappointing and deeply below expectations and forecasts from economists polled by the Wall Street Journal. The expectation was that the August jobs report would indicate an additional 700,000+ new jobs added to payrolls, and the actual number was a tepid 235,000 new jobs added last month.

The weak August jobs report will be weighed against the most recent report by the U.S. Census Bureau, which indicated robust consumer spending last month, resulting in $618 billion, up 0.8%. Economists polled were looking for August consumer spending to be down between -0.8 to -1.8. If you strip out consumer spending on automobiles and trucks, the actual gain for the month of August is 1.8%.

These two reports show an interesting mix between new jobs added and consumer spending. While the jobs report was disappointing and weak at best, consumer spending rose far past the expectations given by economists. Therefore, the Federal Reserve will be faced with making a decision based on strong consumer spending and weak growth in jobs. That will certainly influence their decision as to when they will begin to taper.

For those who would like more information, simply use this link.

Wishing you, as always, good trading and good health,

Gary Wagner

 

September 21st 2021: EUR/USD Eyes H1 Prime Resistance at $1.1767-1.1776 After $1.17 Support

Charts: Trading View

EUR/USD:

(Italics: previous analysis)

Technical studies reveal movement hovering north of prime support at $1.1473-1.1583 on the weekly timeframe. Gleaning additional technical confluence through a 100% Fib projection at $1.1613 and 1.27% Fib extension at $1.1550, this base remains a key watch, long term. With respect to trend on the weekly chart, the market has largely been bullish since the early 2020.

Meanwhile, a closer reading of price on the daily timeframe reveals Monday spiked to within a stone’s throw of Quasimodo support at $1.1689. Albeit sponsoring a late August bid (black arrow), action from $1.1689 failed to find approval north of late July tops at $1.1909; therefore, this ranks $1.1689 as perhaps frail support. Assuming bearish leadership on the daily, the $1.1612 and $1.1602 (September/November 2020) lows signify downside support targets, followed by Fibonacci support between $1.1420 and $1.1522 (glued to the lower side of the weekly timeframe’s prime support at $1.1473-1.1583).

Charted a pip ahead of the daily Quasimodo, the $1.1690-1.1705 decision point put in an appearance on Monday, encouraging H4 sellers to dial back and hand the baton to buyers. Quasimodo support-turned resistance at $1.1742 is now in range on this timeframe, with subsequent bullish interest to perhaps take aim at Quasimodo resistance from $1.1771.

Intraday action on Monday was interesting. The US dollar, in addition to other safe-haven currencies such as the Japanese yen and Swiss franc, gained traction Monday, elevated amidst clear-cut risk-off sentiment. Europe’s single currency, however, reclaimed a large slice of lost ground, aided (technically) not only by the H4 decision point mentioned above at $1.1690-1.1705, but also $1.17 on the H1. At the time of writing, H1 resistance at $1.1728 is active; rupturing the latter paves the way to $1.1742 on the H4, a level shadowed by H1 prime resistance coming in at $1.1767-1.1776, joined by supply at $1.1762-1.1774.

Observed Levels:

Extending recovery gains on short-term charts may have sellers move in on prime resistance at $1.1767-1.1776 on the H1 and supply from $1.1762-1.1774, which dovetails with H4 Quasimodo resistance at $1.1771. However, prior to this, sellers might engage with Quasimodo support-turned resistance at $1.1742 on the H4.

An alternative scenario to be mindful of is a whipsaw south of $1.17 on the H1 to daily Quasimodo support parked at $1.1689. $1.1689 bids feeding off sell-stops below $1.17 could be enough to chalk up a bullish wave.

AUD/USD:

(Italics: previous analysis)

Latest out of the weekly timeframe has AUD/USD touching gloves with prime support at $0.6968-0.7242. Since printing a two-week recovery in late August, the currency pair has been fighting to entice fresh bullish interest. Failure to command position from $0.6968-0.7242 opens up support at $0.6673. Buyers regaining consciousness, nevertheless, has prime resistance at $0.7849-0.7599 to target. Trend studies on the weekly scale show we’ve been higher since early 2020. Consequently, the response from $0.6968-0.7242 could STILL be the beginnings of a dip-buying attempt to merge with the current trend.

The daily timeframe’s technical landscape informs traders bids are perhaps thin within weekly prime support, at least until price shakes hands with Fibonacci support at $0.7057-0.7126. Those who follow the relative strength index (RSI) will note the value journeyed through the 50.00 centreline last week and had Monday dip a toe below 40.00. This highlights a bearish atmosphere until making contact with oversold territory.

Price action on the H4 timeframe came within touching distance of a half-hearted decision point at $0.7200-0.7218 on Monday. To the upside, two resistances are on the radar at $0.7281 and $0.7317.

Lower on the curve, a H1 decision point at $0.7269-0.7259 elbowed into the spotlight, an area formed in the early hours of Monday which saw price tunnel through demand at $0.7248-$0.7259. Continued interest to the downside has $0.72 to target.

Observed Levels:

Each timeframe analysed underlines a bearish energy.

Weekly prime support at $0.6968-0.7242 appears vulnerable due to the daily timeframe exhibiting scope to approach Fibonacci support at $0.7057-0.7126. This, on top of the H1 timeframe’s decision point at $0.7269-0.7259 making a show, implies a short term move to $0.72 (H1) could be in the offing (note $0.72 aligns with the lower band of the H4 decision point at $0.7200-0.7218).

USD/JPY:

(Italics: previous analysis)

Since mid-July, ¥108.40-109.41 demand has failed to stir much bullish energy on the weekly timeframe. Nevertheless, recognising the area derives additional backing from neighbouring descending resistance-turned support, extended from the high ¥118.61, an advance could eventually emerge to familiar supply at ¥113.81-112.22.

The uninspiring vibe out of weekly demand is demonstrated by way of a consolidation on the daily timeframe between prime support at ¥108.96-109.34 and resistance from ¥110.86-110.27. Range support, as you can see, is currently in the frame. In the event price deviates from range extremes, Quasimodo resistance at ¥111.11 is seen, along with a concealed Quasimodo support at ¥108.43. Based on the relative strength index (RSI), the value is confined to a consolidation surrounding the 50.00 centreline, between 40.87 and 56.85.

Broad declines observed in major US equity indexes elevated demand for the safe-haven JPY Monday. USD/JPY downside swings technical curiosity to the H4 double-top pattern’s (¥110.44) profit target around ¥108.71—sharing chart space with a 1.618% Fibonacci projection at ¥108.86 and a 1.272% Fibonacci projection at ¥108.72. However, in order to reach the aforesaid pattern target, the lower edge of the daily range support highlighted above at ¥108.96-109.34 must be taken.

Heading into early US trading on Monday, H1 crossed swords with Quasimodo resistance-turned support at ¥109.45, and clocked a ¥109.65 top before changing gears and heading towards Quasimodo support at ¥109.31. Territory below the latter reveals support at ¥109.11.

Observed Levels:

In keeping with the H4 timeframe, booking additional losses is possibly on the cards until the double-top pattern’s (¥110.44) profit target around ¥108.71. Still, to reach the aforementioned profit target, sellers must marginally defeat the daily timeframe’s range support at ¥108.96-109.34 and take on any bullish interest from weekly demand at ¥108.40-109.41.

Should we nudge through H1 Quasimodo support at ¥109.31, this could be an early sign of bearish muscle making an entrance, and with this, additional selling might take shape.

GBP/USD:

(Italics: previous analysis)

In the shape of a hammer candlestick formation (bullish signal), supply-turned demand at $1.3629-1.3456 on the weekly timeframe stepped forward in July. The aforementioned zone remains active, welcoming an additional test mid-August. Yet, pattern traders will also note August’s move closed south of a double-top pattern’s neckline at $1.3669, broadcasting a bearish vibe. Conservative pattern sellers, however, are likely to pursue a candle close beneath $1.3629-1.3456 before pulling the trigger.

Sterling kicked off the week on the ropes, clocking one-month lows versus the US dollar. GBP/USD remains comfortable beneath the 200-day simple moving average at $1.3831 and is within reach of Quasimodo support at $1.3609. Previous analysis underlined the daily chart has communicated a rangebound environment since late June between a 61.8% Fib retracement at $1.3991 and the noted Quasimodo support. Momentum, according to the relative strength index (RSI) value, extended position below the 50.00 centreline and scraped through 40.00 on Monday. This informs traders that momentum to the downside is increasing in the form of average losses exceeding average gains.

Yesterday’s bearish presence established a decision point at $1.3750-1.3721, an area forming a decision to tunnel through Quasimodo support from $1.3693 (currently serving as resistance). Daily Quasimodo support mentioned above at $1.3609 calls for attention as a downside objective also on the H4 scale.

From the H1 timeframe, mid-way through London on Monday clipped the lower side of $1.37 and also brought in resistance at $1.3689—a previous Quasimodo support level drawn from 26th August. Further softening places Quasimodo support at $1.3618 and the $1.36 figure in sight.

Observed Levels:

Having noted scope for the daily timeframe to test Quasimodo support at $1.3609, retesting either H4 resistance at $1.3693 or the H4 decision point at $1.3750-1.3721 could stir a bearish theme. Adding weight to $1.3693 is H1 resistance coming in at $1.3689 and the $1.37 figure.

The H1 Quasimodo support at $1.3618 forms a reasonable downside target, arranged just north of the noted Quasimodo support on the daily timeframe.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

Wall Street Ends Sharply Lower in Broad Sell-Off

The Nasdaq fell to its lowest level in about a month, and Microsoft Corp, Alphabet Inc, Amazon.com Inc, Apple Inc, Facebook Inc and Tesla Inc were among the biggest drags on the index as well as the S&P 500.

All 11 major S&P 500 sectors were lower, with economically sensitive groups like energy down the most.

Investors also were nervous ahead of the Federal Reserve’s policy meeting this week.

The banking sub-index dropped sharply while U.S. Treasury prices rose as worries about the possible default of Evergrande appeared to affect the broader market.

“You kind of knew that when there was something that caught markets off guard, that it was going to lead to probably a bigger sell-off and you didn’t know what the reason would be,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

“I guess it’s the China news but… it’s not altogether surprising given how bullish people were.”

Wednesday will bring the results of the Fed’s policy meeting, where the central bank is expected to lay the groundwork for a tapering, although the consensus is for an actual announcement to be delayed until the November or December meetings.

Unofficially, the Dow Jones Industrial Average fell 620.22 points, or 1.79%, to 33,964.66, the S&P 500 lost 75.28 points, or 1.70%, to 4,357.71 and the Nasdaq Composite dropped 325.95 points, or 2.17%, to 14,718.02.

The S&P 500 is down sharply from its intra-day record high hit on Sept. 2 and is on track to snap a seven-month winning streak.

Strategists at Morgan Stanley said they expected a 10% correction in the S&P 500 as the Fed starts to unwind its monetary support, adding that signs of stalling economic growth could deepen it to 20%.

The CBOE volatility index, known as Wall Street’s fear gauge, rose.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch in New York; additional reporting by Devik Jain and Sagarika Jaisinghani in Bengaluru and by Noel Randewich in San Francisco; Editing by Sriraj Kalluvila and Lisa Shumaker)

Coinbase Scraps Plans for Crypto Lending Program

The move comes days after U.S. regulators said it would sue Coinbase if it went ahead with its program allowing users to earn interest by lending digital assets.

“As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch the USDC APY program,” Coinbase’s blog post said.

USDC is a stablecoin that is pegged to the U.S. dollar and can be redeemed for $1 on a one-to-one basis.

The crypto exchange also said it has discontinued the waitlist for its USDC APY (annual percentage yield) program, a high-yield alternative to traditional savings accounts that would have paid lenders of USDC to Coinbase a 4% APY.

Coinbase, which said it has seen a rise in crypto interest account in recent times, had been planning to offer a principal guarantee to lenders of USDC in their Coinbase account.

It added that a 4% APY on USDC would provide a customer eight times the national average on high-yield savings accounts, based on a Bankrate.com survey of U.S. savings accounts in June 2021.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sohini Podder in Bengaluru; Editing by Shailesh Kuber)

U.S. Swap Spreads Widen, Three-Month Libor Rises as Risk Aversion Spreads

In another sign of concern brewing in money markets, analysts cited three-month Libor, which rose to 12.5 basis points, a four-week peak, according to Refinitiv data, which may reflect some stress in the banking system.

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors. Regulators have warned that its $305 billion in liabilities could spark broader risks to China’s financial system if its debts are not stabilized.

Spreads of interest rate swaps are typically viewed as indicators of market risk, analysts said. A higher spread suggests market participants are willing to swap their risk exposures, suggesting overall risk aversion.

The spread on 10-year U.S. swaps over benchmark Treasuries rose to 5.25 basis points, from 4 basis points late on Friday. The spread was 3.25 basis point late Monday.

U.S. 10-year swaps measure the cost of swapping fixed rate cash flows for floating rate ones over a 10-year term.

“Wider swap spreads reflect an expectation that Libor is going to move higher,” said Dan Belton, fixed-income strategist, at BMO Capital in Chicago.

“And Libor is generally seen as the fear gauge. When there is financial market stress, Libor tends to widen and swap spreads tend to follow,” he added.

Libor has been on a downtrend this year given excess cash in the banking system as a result of the Federal Reserve’s asset purchases under its quantitative easing program. But Libor has perked up over the last week and a half.

That said, Belton clarified that wider spreads can also be attributed to technical factors.

“A lot of the moves has been technical in nature, a lot to do with the Libor transition. Interest rate swaps are still referencing Libor, but in two years, it will SOFR (secured overnight financing rates), plus a fixed spread,” Belton said.

For now, global banks still use Libor to price U.S. dollar-denominated derivatives and loans, but they will soon have to transition to using SOFR.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci)

Oil Falls 2% on Risk Aversion, Dollar Strength

Brent crude fell $1.42, or 1.9%, to settle at $73.92 a barrel after sinking to a session low of $73.52. U.S. West Texas Intermediate (WTI) declined $1.68, or 2.3%, to end at $70.29 after falling to as low as $69.86.

The dollar, seen as a safe haven, rose as worries about Chinese property developer Evergrande’s solvency spooked equity markets and investors braced for the Federal Reserve to take another step toward tapering this week.

“As the U.S. dollar is usually a safe haven, its exchange rate against other currencies strengthens, a development that supplements the risk aversion environment and affects commodity prices, especially oil,” Rystad Energy’s oil markets analyst Nishant Bhushan said.

“Oil gets more expensive for non-dollar markets and prices get a hit as a result, a bearish move backed by the stock market itself in an environment of risk aversion.”

Still, oil drew some support from signs that some U.S. Gulf output will stay offline for months due to storm damage.

Brent has gained 43% this year, supported by supply cuts by the Organization of the Petroleum Exporting Countries and allies, and some recovery in demand after last year’s pandemic-induced collapse.

Losses on Monday were limited due to supply shutdowns in the U.S. Gulf of Mexico due to two recent hurricanes. As of Friday producing companies had just 23% of crude production offline, or 422,078 barrels per day.

Crude pared its decline on Monday after Royal Dutch Shell said it expects an installation in the Gulf of Mexico to be offline for repairs until the end of 2021 due to damage from Hurricane Ida.

The facility serves as the transfer station for all the output from the company’s assets in the Mars corridor of the Mississippi Canyon area to onshore crude terminals.

Rystad Energy analyst Artem Abramov estimated the lost production will remove 200,000 to 250,000 barrels per day (bpd) of Gulf of Mexico oil supply for several months. The Gulf contributes about 16% of U.S. oil production, or 1.8 million bpd.

For a look at all of today’s economic events, check out our economic calendar.

(Reporing by Alex Lawler; Additional reporting by Sonali Paul in Melbourne, and Roslan Khasawneh and Koustav Samanta in Singapore; Editing by Marguerita Choy and David Gregorio)

World Shares Tumble as China Evergrande Contagion Fears Spread

MSCI’s gauge of stocks across the globe shed 2.09%, on pace for its biggest one-day fall since October 2020, as Wall Street’s major indexes sagged more than 2%.

Investors moved into safe havens, with U.S. Treasuries gaining in price, pulling down yields, and gold rising.

Shares in Evergrande, which has been scrambling to raise funds to pay its many lenders, suppliers and investors, closed down 10.2% at HK$2.28.

Regulators have warned that its $305 billion of liabilities could spark broader risks to China’s financial system if its debts are not stabilized.

“Investors are concerned that the Evergrande issue is going represent a domino,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Investors are tending to sell first and look into it to later.”

The Dow Jones Industrial Average fell 787.6 points, or 2.28%, to 33,797.28, the S&P 500 lost 101.41 points, or 2.29%, to 4,331.58 and the Nasdaq Composite dropped 408.25 points, or 2.71%, to 14,635.71.

Economically sensitive sectors, including financials and energy, were hit particularly hard.

The pan-European STOXX 600 index lost 1.67%, with mining stocks sliding.

The selloff on Monday has seen a cumulative $2.2 trillion of value wiped off the market capitalization of world equities from a record high of $97 trillion hit on Sept. 6, according to Refinitiv data.

Worries over Evergrande follow a pullback in equities recently as investors worry over the impact of coronavirus cases on the economy, and when central banks will ease back on monetary stimulus.

The U.S. Federal Reserve is due to meet on Tuesday and Wednesday as investors look for when it will begin pulling back on its bond purchases.

Investors were also keeping an eye on other central bank meetings spanning Brazil, Britain, Hungary, Indonesia, Japan, Norway, the Philippines, South Africa, Sweden, Switzerland, Taiwan and Turkey.

The dollar index rose 0.061%, with the euro unchanged at $1.1725.

The offshore Chinese yuan weakened versus the U.S. currency to its lowest level in nearly a month.

“We are seeing a classic flight to safety in the dollar until we get some sense of clarity on whether or not it is going to be an orderly or disorderly resolution to Evergrande,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, DC.

Benchmark 10-year notes last rose 22/32 in price to yield 1.2972%, from 1.37% late on Friday.

The iShares exchange-traded fund tracking high-yield corporate bonds edged down 0.5%.

Oil prices fell but drew support from signs that some U.S. Gulf output will stay offline for months due to storm damage.

U.S. crude fell 2.18% to $70.40 per barrel and Brent was at $73.99, down 1.79% on the day.

Spot gold added 0.4% to $1,761.29 an ounce, rising off of a one-month low.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf in New York and Tom Arnold in London; Additional reporting by Anushka Trivedi in Bengaluru, Saikat Chatterjee in London, Karen Pierog and Chuck Mikolajczak in New York and Wayne Cole in Sydney; Graphic by Sujata Rao; Editing by Jane Merriman, Mark Potter and Jan Harvey)

Universal Music Valued Around $39 Billion Ahead of Stock Market Debut

France’s Vivendi is spinning off Universal and on Monday set a reference price for the listing at 18.5 euros per share, according to a statement issued by Euronext.

Universal Music Group’s (UMG) listing will be Europe’s largest this year and will hand 60% of shares to Vivendi shareholders.

Universal is betting that a boom in streaming led by Spotify that has fuelled royalty revenue and profit growth for several years still has a long way to run, in a music industry it dominates along with Warner and Sony Music, part of Sony Group Corp.

Its flotation carries high stakes for Canal+ owner Vivendi, which hopes to rid itself of a conglomerate discount. However, the listing raises questions about Vivendi’s strategy once it parts ways with its cash cow, in which it will retain only a 10% stake.

Several high-profile investors have also already snapped up large Universal stakes, banking in part on the group’s back catalogue, which includes the likes of Bob Dylan and the Beatles. They also hope deals with ad-supported software and social media platforms such as Alphabet Inc’s YouTube and TikTok will sustain its performance and valuation.

U.S. billionaire William Ackman suffered a setback when his attempt to invest in Universal via a special purpose acquisition vehicle (SPAC) hit a snag with regulators and investors. However, Ackman still got a 10% stake via his Pershing Square hedge fund. China’s Tencent owns 20% of Universal.

One winner in the listing will be Vincent Bollore, the French media tycoon who is Vivendi’s controlling shareholder. He will receive Universal shares worth 6 billion euros at Monday’s price.

Bollore has been an aggressive consolidator in France’s media and publishing landscape, and he has a long-held ambition to build up a southern European media powerhouse.

Vivendi itself may suffer in the short run, however, and shares are expected to fall Tuesday as they begin trading without Universal.

BNP Paribas, Natixis, Credit Agricole, Morgan Stanley and Societe Generale are the lead financial advisers on the deal, out of 17 banks in total — an unusually large total.

The fee pot is expected to be below standard listings as no fresh cash is being raised as part of the spin-off.

Universal said in its prospectus that the overall expenses to be paid in relation to the Universal deal would not go beyond 0.5% of the total amount of the share distribution.

The listing is the latest win for Euronext in Amsterdam, which has grown as a financial centre in the wake of Britain’s departure from the European Union. Before Universal, Amsterdam had attracted a record 14 IPOs so far this year, of which 10 were SPACs.

But the only Amsterdam listing of a size comparable to Universal in recent history was the 95 billion euro listing of technology investor Prosus, also a spin-off, in September 2019.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 0.8524 euros)

(Additional reporting by Toby Sterling; Writing by Sarah White; Editing by David Evans and Lisa Shumaker)

Analysis: Why the Fed Might Welcome a Bond Market Tantrum

Persistently low yields are a feature of bond markets across the developed world, with central banks mostly in no hurry to raise interest rates and a global savings glut that keeps debt securities in constant demand.

But it is in the United States that the contradiction between economic recovery and bond yields is starkest.

Even with growth tipped to surpass 6% this year and a “taper” in sight for the Fed’s bond-buying programme at the end of this year, 10-year yields are still stuck at just above 1.3%..

The Fed probably rejoiced at low yields in the initial stages of the economic recovery, but now needs bonds to respond to the end of pandemic-linked recession, said Padhraic Garvey, head of research for the Americas at ING Bank.

Current pricing, analysts say, looks more consistent with heightened economic uncertainty, whereas higher yields would align markets more with the signals coming from central banks.

“To facilitate that, we argue that there needs to be a tantrum. If the Fed has a taper announcement … and there is no tantrum at all, that in fact is a problem for the Fed,” ING’s Garvey said.

Analysts say a bond market tantrum would involve yields rising 75-100 basis points (bps) within a couple of months.

The original “taper tantrum” in 2013 boosted U.S. yields just over 100 bps in the four months after then Fed boss Ben Bernanke hinted at an unwinding of stimulus measures.

But that kind of sudden jump in yields looks unlikely right now, given how clearly the Fed has telegraphed its plans to taper its bond-buying. And as 2013 showed, bond market tantrums carry nasty side-effects including equity sell-offs and higher borrowing costs worldwide.

A happy medium, analysts say, might be for benchmark yields to rise 30-40 bps to 1.6-1.8%

FED AND BANKS NEED AMMUNITION

Besides wanting higher yields to better reflect the pace of economic growth, the Fed also needs to recoup some ammunition to counter future economic reversals.

The Fed funds rate – the overnight rate which guides U.S. borrowing costs – is at zero to 0.25%, and U.S. policymakers, unlike the Bank of Japan and the European Central Bank, are disinclined to take interest rates negative.

The Fed won’t want to find itself in the position of the ECB and BOJ, whose stimulus options at the moment are limited to cutting rates further into negative territory or buying more bonds to underwrite government spending.

Jim Leaviss, chief investment officer at M&G Investments for public fixed income, said policymakers would probably like the Fed fund rate to be at 2%, “so, when we end up in the next downturn, the Fed will have some space to cut interest rates without hitting the lower bound of zero quickly”.

Another reason higher yields might be welcomed is because banks would like steeper yield curves to boost the attractiveness of making longer-term loans funded with short-term borrowing from depositors or markets.

Thomas Costerg, senior economist at Pictet Wealth Management, notes that the gap between the Fed funds rate and 10-year yields of about 125 bps now is well below the average 200 bps seen during previous peaks in economic expansion.

He believes the Fed would favour a 200 bps yield slope, “not only because it would validate their view that the economic cycle is fine but also because a slope of 200 bps is healthy for the banking sector’s maturity transformation.”

GRAVITATIONAL FORCE

But even a tantrum might not bring a lasting rise in yields.

First, while the Fed may look with envy at Norway and New Zealand where yields have risen in expectation of rate rises, it has stressed that its own official rates won’t rise for a while.

Structural factors are at play too, not least global demand for the only large AAA-rated bond market with positive yields.

The Fed also, in theory at least, guides rates towards the natural rate of interest, the level where full employment coincides with stable inflation.

But this rate has shrunk steadily. Adjusted for projected inflation, the “longer-run” funds rate – the Fed’s proxy for the natural rate – has fallen to 0.5% from 2.4% in 2007. If correct, it leaves the Fed with little leeway.

Demographics and slower trend growth are cited as reasons for the decline in the natural rate though a paper https://bit.ly/3nVMxMv presented last month at the Jackson Hole symposium also blamed a rise in income inequality since the 1980s.

The paper said the rich, who are more likely to save, were taking a bigger slice of overall income and the resulting savings glut was weighing on the natural rate of interest.

“One lesson from this year is that there is massive gravitational force, a price-insensitive demand which is pressing down on Treasury yields,” Pictet’s Costerg said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Stefano Rebaudo; Additional reporting by Dhara Ranasinghe in London and Dan Burns in New York; Editing by Sujata Rao and David Clarke)

 

China Evergrande Contagion Concerns Rile Global Markets

Shares in Evergrande, which has been scrambling to raise funds to pay its many lenders, suppliers and investors, closed down 10.2% at HK$2.28 on Monday, after earlier plummeting 19% to its weakest level since May 2010.

Regulators have warned that its $305 billion of liabilities could spark broader risks to China’s financial system if its debts are not stabilised.

World shares skidded and the dollar firmed as investors fretted about the spillover risk to the global economy. U.S. stocks were sharply lower, with the S&P 500 down nearly 2%.

A major test comes this week, with Evergrande due to pay $83.5 million in interest relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.

Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande, teetering between a messy meltdown, a managed collapse or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.

Evergrande’s troubles also pressured the broader property sector, with Hong Kong-listed shares of small-sized Chinese developer Sinic Holdings down 87%, wiping $1.5 billion off its market value before trading was suspended.

Evergrande executives are working to salvage its business prospects, including by starting to repay investors in its wealth management products with real estate.

“(Evergrande’s) stock will continue to fall, because there’s not yet a solution that appears to be helping the company to ease its liquidity stress, and there are still so many uncertainties about what the company will do in case of a restructuring,” Kington Lin, managing director of Asset Management Department at Canfield Securities Limited, said.

Lin said Evergrande’s shares could fall to below HK$1 if it is forced to sell most of its assets in a restructuring.

“As of right now, I don’t see any systemic risk for the global economy from the Evergrande situation, but there doesn’t need to be any systemic risk in order for markets to be affected,” David Bahnsen, chief investment officer, The Bahnsen Group, a wealth management firm based in Newport Beach, Calif, said in emailed commentary.

There was some confidence, however, that the situation would be contained.

“Beijing has demonstrated in recent years that it is fully able and willing to step in to stem widespread contagion when major financial/corporate institutions fail,” Alvin Tan, FX Strategist at RBC Capital Markets, said in a research note.

DOLLAR BONDS

Despite mounting worries about the future of what was once the country’s top-selling property developer, analysts, however, have played down comparisons to the 2008 collapse of U.S. investment bank Lehman Brothers.

“First, the dollar bonds will likely get restructured, but most of the debt is in global mutual funds, ETFs, and some Chinese companies and not banks or other important financial institutions,” said LPL Financials’ Ryan Detrick.

“Lehman Brothers was held on nearly all other financial institution’s books,” he said. “Secondly, we think the odds do favor the Chinese communist government will get involved should there be a default.”

Policymakers in China have been telling Evergrande’s major lenders to extend interest payments or rollover loans, but market watchers are largely of the view that a direct bailout from the government is unlikely.

The People’s Bank of China, its central bank, and the nation’s banking watchdog summoned Evergrande’s executives in August in a rare move and warned that it needed to reduce its debt risks and prioritise stability.

Trading of the company’s bonds underscore just how dramatically investor expectations of its prospects have deteriorated this year.

The 8.25% March 2022 dollar bond was traded at 29.156 cents on Monday, yielding over 500%, compared to 13.7% at the start of year. The 9.5% March 2024 bond was at 26.4 cents, yielding over 80%, compared to 14.6% at the start of 2021.

PROPERTY PUNISHED

Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent and a special purpose vehicle, recoveries in a potential restructuring could differ between the two sets of bonds, and the process may be prolonged.

Investors, meanwhile, are increasingly worried about the contagion risk, mainly in the debt-laden Chinese property sector, which along with the yuan came under pressure on Monday.

The yuan fell to a three-week low of 6.4831 per dollar in offshore trade.

Hong Kong-listed Sinic, which saw massive selling pressure, has nearly $700 million in offshore debts maturing before June 2022, including $246 million due in a month — a bond which has tumbled to around 89 cents on the dollar.

Sinic has a junk rating from Fitch, which downgraded its outlook to negative on Friday.

Other property stocks such as Sunac, China’s No.4 property developer, tumbled 10.5%, while state-backed Greentown China shed around 6.7%.

Guangzhou R&F Properties Co said on Monday it was raising as much as $2.5 billion by borrowing from major shareholders and selling a subsidiary, highlighting the scramble for cash as distress signals spread in the sector.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 7.7863 Hong Kong dollars)

(Reporting by Clare Jim; additional reporting by Tom Westbrook and Alun John; Writing by Sumeet Chatterjee; Editing by Shri Navaratnam; Mark Potter and Alexander Smith)

EUR/USD, GBP/USD Analysis & Setups 20 – 21 Sep 2021

The EUR/USD is testing the previous bottom and key decision zone. The GBP/USD seems to be creating a triangle chart pattern if price action makes a bullish bounce.

If you think our videos, analysis, and education can help you become a better trader, then you can ask your own questions via our form and we will answer them in the weekly live webinar every Tuesday.

EUR/USD & GBP/USD Overview

The EUR/USD needs to break above the double top at 1.19 or the 88.6% Fib at 1.17 before a clear bullish or bearish swing can be expected.

The GBP/USD is probably in a triangle pattern unless there is an immediate break, pullback, and continuation below the support line.

Check out the video below for the full analysis and trade plans on 20 – 21 September 2021:

For a look at all of today’s economic events, check out our economic calendar.

Good trading,

Chris Svorcik
CTA

 

USD Bears Are Fresh Out of Honey Pots

With headline after headline attempting to knock the USD Index off of its lofty perch, I warned on Sep. 13 that dollar bears will likely run out of honey sooner rather than later.

I wrote:

While the USD Index was under fundamental fire in recent weeks, buyers eagerly hit the bid near the 38.2% Fibonacci retracement level. And after positive sentiment lifted the greenback back above the neckline of its inverse (bullish) head & shoulders pattern last week, the USDX’s medium-term outlook remains profoundly bullish.

More importantly, though, after the USD Index rallied by 0.63% last week and further validated its bullish breakout, gold, silver, and mining stocks ran in the opposite direction. And with the divergence likely to accelerate over the medium term, the swarm should sting the precious metals during the autumn months.

Please see below:

ChartDescription automatically generated

Conversely, if the USD Index encounters resistance as it attempts to make a new 2021 high, gold, silver, and mining stocks could enjoy an immaterial corrective upswing. However, the optimism will likely be short lived, and it’s likely a matter of when, not if, the USD Index reaches the illustrious milestone.

Equally bullish for the greenback, with the USD Index’s technical strength signaling an ominous ending for the Euro Index, I warned on Sep. 13 that the latter faced a tough road ahead.

I wrote:

While I have less conviction in the Euro Index’s next move relative to the USD Index, more likely than not, the Euro Index should break down once again and the bearish momentum should resume over the medium term.

And after the Euro Index sunk below the neckline of its bearish head & shoulders pattern last week, lower lows remains the most likely outcome over the medium term.

Please see below:

Chart, line chartDescription automatically generated

Adding to our confidence (don’t get me wrong, there are no certainties in any market; it’s just that the bullish narrative for the USDX is even more bullish in my view), the USD Index often sizzles in the summer sun and major USDX rallies often start during the middle of the year. Summertime spikes have been mainstays on the USD Index’s historical record and in 2004, 2005, 2008, 2011, 2014 and 2018 a retest of the lows (or close to them) occurred before the USD Index began its upward flights (which is exactly what’s happened this time around).

Furthermore, profound rallies (marked by the red vertical dashed lines below) followed in 2008, 2011 and 2014. With the current situation mirroring the latter, a small consolidation on the long-term chart is exactly what occurred before the USD Index surged in 2014. Likewise, the USD Index recently bottomed near its 50-week moving average; an identical development occurred in 2014. More importantly, though, with bottoms in the precious metals market often occurring when gold trades in unison with the USD Index (after ceasing to respond to the USD’s rallies with declines), we’re still far away from that milestone in terms of both price and duration.

Moreover, as the journey unfolds, the bullish signals from 2014 have resurfaced once again. For example, the USD Index’s RSI is hovering near a similar level (marked with red ellipses), and back then, a corrective downswing also occurred at the previous highs. More importantly, though, the short-term weakness was followed by a profound rally in 2014, and many technical and fundamental indicators signal that another reenactment could be forthcoming.

Please see below:

ChartDescription automatically generated

Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices (or the ones of silver) here is likely not a good idea.

Continuing the theme, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the wind still remains at the greenback’s back.

Please see below:

ChartDescription automatically generated

The bottom line?

Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop after that, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

In conclusion, the USD Index’s sweet performance left sour tastes in the precious metals’ mouths. And with the former’s bullish breakout signaling an ominous future for the latter, gold, silver, and mining stocks will likely confront new lows over the medium term. However, once the autumn months fade and the winter weather approaches, buying opportunities may present themselves. And with unprecedented monetary and fiscal policy likely to underwrite new highs in the coming years, the long-term outlook for gold, silver, and mining stocks remains extremely bright.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

S&P 500 Is Poised to Open Much Lower, Is This a Dip-buying Opportunity?

The broad stock market index broke below its short-term consolidation on Friday, as the S&P 500 index fell below its recent local lows along 4,450 price level. On September 2 the index reached a new record high of 4,545.85. Since then it has lost almost 120 points. This morning stocks are expected to open much lower following big declines in Asia and Europe after news about Evergrande Real Estate Group crisis in China.

The nearest important support level of the broad stock market index is now at 4,300-4,350 and the next support level is at 4,200. On the other hand, the nearest important resistance level is now at 4,400-4,450, marked by the previous support level. The S&P 500 broke below its over four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Dow Jones Is Leading Lower

Let’s take a look at the Dow Jones Industrial Average chart. The blue-chip index broke below a potential two-month-long rising wedge downward reversal pattern recently. It remained relatively weaker in August – September, as it didn’t reach a new record high like the S&P 500 and the Nasdaq. Today it may sell off to 34,000 level or lower. The next support level is at around 33,250-33,500 and the resistance level is at 34,500, marked by the recent support level, as we can see on the daily chart:

Apple Breaks Below Upward Trend Line

Apple stock weighs around 6.3% in the S&P 500 index, so it is important for the whole broad stock market picture. In early September it reached a new record high of $157.26. And since then it has been declining. So it looked like a bull trap trading action. We can still see negative technical divergences between the price and indicators and a potential topping pattern. The stock is breaking below an over two-month-long upward trend line.

September Last Year – S&P 500 Fell Almost 11%

In 2020, the S&P 500 index reached a local high of 3,588.11 on September 2 and in just three weeks it fell 10.6% to local low of 3,209.45 on September 24. This year, September’s downward correction has started from the new record high of 4,545.85 on September 3, so there is a striking similarity between those two trading actions.

Conclusion

The S&P 500 index broke below its short-term consolidation on Friday and today it will most likely accelerate the downtrend from the early September record high. However, later in the day we may see some short-term/ intraday bottoming trading action.

The market seems overbought, and we may see some more profound downward correction soon. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

  • The market is extending its downtrend today, as the S&P 500 index is likely to open much below 4,400 level.
  • Our speculative short position is still justified from the risk/reward perspective.
  • We are expecting a 5% or bigger correction from the record high.

Like what you’ve read? Subscribe for our daily newsletter today, and you’ll get 7 days of FREE access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care

* * * * *

The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data’s accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

GOLD and Silver Elliott Wave Cycles Approaching Support

Back in August Gold made nice and impulsive rally away from 1685 lows, as seen on the 4-hour chart that we labeled as first leg A) of a three-wave recovery within higher degree wave D. So, with current three-wave A-B-C pullback for B), seems like gold may find the base soon, ideally here around 61,8% Fibonacci. retracement, which means that we have to expect another recovery within wave C) of D up to 1850 area, especially if price recovers back above 1782 region.

GOLD 4h Elliott Wave Analysis Chart

Graphical user interface, application, Word

Description automatically generated

Technically Gold is bouncing from lower Bollinger band and we can we bullish divergence on 4h GOLD chart, seems like Gold searches for the support.

Chart

Description automatically generated with medium confidence

Silver is coming even lower in the 4-hour chart, now breaking even August lows, so we are tracking final wave 5 of a bigger ending diagonal (wedge) pattern that can find the support soon, ideally here in the 22 – 20 zone, but keep in mind that bulls could be back in the game only if we see a recovery back above 24.80 region.

Silver Elliott Wave Analysis

Graphical user interface

Description automatically generated

Like GOLD, Sliver is also forming bullish divergence on 4h chart means support is nearby.

Chart, line chart

Description automatically generated

For a look at all of today’s economic events, check out our economic calendar.

Commodity Supercycle Sets New Record Highs – Where Next For Prices?

Commodities are currently on an unstoppable run with everything from the metals, energies to agriculture markets setting new record highs as the supercycle firmly gathers pace.

Last week, a wide number of commodities blasted through all-time highs.

Aluminium prices soared to 13-year highs. Nickel prices hit 7-year highs and Uranium prices surged to 9-year highs – surpassing a record 6-year high, set only a week ago.

The bullish momentum also split over into other commodities with Natural Gas rallying to a 7-year high. Sugar prices hitting 4-year highs and Lithium prices climbing to an all-time record high.

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up double to triple digit gains within the in the past year.

Uranium, Natural Gas and Lithium prices are up 219%, 240% and 215%, respectively.

But the best performing commodity, so far this year, is Crude Oil.

Crude Oil prices have quadrupled this year and are setting new record highs almost every month. Crude Oil prices are currently up over 287% from their 2020 lows.

There are plenty of reasons why commodities are on the move, but the key driver is rapidly surging global inflation, tightening supply, logistical bottlenecks and booming demand across many highly essential commodities as a result of the COVID-19 pandemic.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Oil is Still Bullish as the Retracement is Underway

The POC zone 68.25-68.80 is the zone where the price might bounce. CAD is dropping and CAD is correlating to Oil. If we see a retracement there, watch for a move towards 70.80 and 73.79. If bulls want to stay in control the price needs to stay above 67.00. Buying the dips is still the strategy to go with.

Cheers and safe trading,

Nenad

 

Say Bye-Bye to Major Supports. We May Not See Those Levels for a While

And it happened! The bears were talking about this for a long time and it finally happened; a bearish correction. The price broke the long-term up trendline on the SP500 and is aiming lower. The target for the drop is still far away, so it might be nice to buckle up.

The DAX also dropped like a rock after the breakout of the long-term up trendline and the neckline of the triple top formation. The next target: 14100 points.

Although indices are sliding, gold is not climbing higher. A stronger dollar is definitely not helping.

The GBPUSD came back inside the falling wedge pattern. That’s definitely negative.

The CADJPY is aiming for the 38,2% Fibonacci to test it as a crucial support.

The EURNZD is inside a small sideways trend. A breakout from it, will show us a direction.

The EURJPY has failed to create the inverse head and shoulders pattern and dropped lower.

The USDJPY bounced from the upper line of the triangle and brought us a sell signal with the target being on the lower line of this pattern.

For a look at all of today’s economic events, check out our economic calendar.

HYCM to Run Exclusive Dubai Seminar on Year-End Trading

The in-person seminar titled ‘Trading into Year-End: All You Need to Know’ will prepare investors on how to navigate trading into the end of 2021 and will be presented by industry expert and Chief Currency Analyst, Giles Coghlan, who regularly appears on CNBC Arabia, Asharq Bloomberg and other prominent media. This free seminar is from 4 pm – 8 pm and is open to anyone interested as long as they have booked their spot in advance.

Some of the topics to be covered include:

  • Which instruments are hot into year-end and which to avoid,
  • How to use the latest tools & resources to maximise trading potential,
  • Practices to improve trading strategy and common errors to avoid,
  • How to benefit from exclusive time-sensitive data.

At the end of the session, attendees can participate in a Q&A with Giles Coghlan. Moreover, attendees who open a trading account will be eligible for a special offer with exclusive benefits.

HYCM will also be present at one of the largest trading events, The Forex Expo Dubai, at the Dubai World Trade Centre. Anyone visiting the expo is invited to visit HYCM representatives at Booth No. 22. Giles Coghlan will give a speech on the 29th September on “How to trade gold into year-end?” in Exhibition Hall 6 and will participate in a panel discussion with prominent speakers on the 30th September.

HYCM has a long-standing history and reputation in the Middle East, with offices in Dubai, regulated by the Dubai Financial Services Authority, as well as London, Hong Kong, Kuwait, and Cyprus. These popular in-person seminars at one of Dubai’s most breathtaking hotels are part of its focus on the region. HYCM has been the recipient of over 20 awards, most recently including Best Forex Broker UAE 2020, Middle East 2018 and 2017.

Book a seminar seat

About HYCM

HYCM is the global brand name of Henyep Capital Markets (UK) Limited, HYCM (Europe) Ltd, Henyep Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under Henyep Capital Markets Group, a global corporation founded in 1977, operating in Asia, Europe, and the Middle East.

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

EUR/GBP Bullish Reversal at 61.8% Fibonacci Support Zone

The EUR/GBP has made a key bullish bounce at the 61.8% Fibonacci retracement. This occurred after price action made a breakout above the key resistance trend line (dotted red).

This article will examine whether a long-term bullish reversal can indeed take place on the daily chart.

Price Charts and Technical Analysis

EUR/GBP daily chart

The EUR/GBP daily chart is showing wicks on the bottom of the daily candle. Price action is now testing the 21 ema resistance zone:

  1. A push above the 21 ema zone could indicate a bullish breakout (green arrow).
  2. The first target is the -27.2% Fibonacci level at 0.8658.
  3. A bull flag or pullback after hitting the first target could see price action move up again towards the second target at the -61.8% Fibonacci level at 0.8715.
  4. A break (blue arrow) above the resistance zone (red box) could indicate a larger bullish reversal via a wave 3 (purple) pattern.
  5. A bearish bounce (orange arrow) leaves the window open for an ABC (grey) pattern.

On the 4 hour chart, the EUR/GBP is showing a bullish breakout above the resistance trend lines (red dotted):

  1. Price action seems to have completed a 5 wave pattern (pink) in wave 1 (purple).
  2. A bearish ABC (pink) could have completed wave 2 (pink).
  3. A bearish breakout (red arrows), however, below the support trend line (green) could indicate a deeper wave 2 at the 78.6% Fibonacci level.
  4. A break below the bottom invalidates (red circle) the wave 1-2 (purple) pattern.
  5. A bullish continuation (green arrow) above the current candle indicates an immediate push higher. A small pullback (orange arrow) also could see a push up (green arrow).
  6. A bull flag pattern (grey arrow) could kick start a larger bullish breakout (blue arrow).

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

Equinor Wins Permission to Hike Troll, Oseberg Gas Exports, DN Reports

The increase would be valid for the next gas year, which starts on Oct. 1 and runs for 12 months, the minister was quoted as saying. He did not say by how much the production would be increased.

Equinor and the ministry were not immediately available for comment.

Day-ahead gas prices at the Dutch TTF hub, a European benchmark, have more than tripled this year to record levels, driving up power prices as the winter heating season approaches with below-average levels of gas in storage.

The situation is prompting Britain to consider state-backed loans to energy firms and big suppliers to ask for government support to cover the cost of taking on customers from companies that have gone bust.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Terje Solsvik and Victoria Klesty, editing by Gwladys Fouche)