Date Friday May 14, 2021
Drivers
US Producer Price Index rose 6.2% YoY yesterday. This is adding to the fear of inflation in after the huge 4.2% US CPI print earlier this week. Rising inflation has been worrying Wall Street as investors fear the Fed may have to respond by tapering its asset purchases or raising its key interest rate sooner than anticipated. Inflation expectations have also been hurting growth stocks, including big tech, because expectations of rising costs can dent the outlook for profitability for these companies.
Meanwhile, Fed officials continue to talk down any fears of inflation. Waller said, “we will not overreact to temporary overshoots of inflation”. Bullard said that Monetary Policy is in a good place and that it is too early to talk about tapering. This should allow risk sentiment to recover in the short-term.
In Canada, BoC’s Tiff Macklem said that they are watching the recent rise in the Canadian dollar to ensure it does not cause headwinds. He has also indicated that they will not be in a rush to hike rates until a “complete” recovery. He said that they are about 700k jobs below where they should be so employment numbers will be important to watch from here. USDCAD regained some traction, surging back above crucial 1.21 level but the main trend is still down. We are nevertheless looking look to buy dips in USDCAD around 1.2100 against the 1.2046 low this week and to fade CADJPY at 90.50 against the 90.64 high.

Commodities also pulling back from recent gains. Iron ore led industrial metals lower as China tries to limit rapid gains in raw material costs. Oil also fell adding to CAD weakness.
FX is likely to remain choppy as the market tries to work out whether it believes the Fed’s sanguine approach to inflation. The Fed has said repeatedly that it will look through temporary spikes in inflation and focus on employment so for now we will have to take their word for it but eventually this stance is likely to be tested.

AUDUSD has been on a round trip but overall remains range bound. Breaking to the topside last week through 0.7820 to trade up to 0.7891 on Monday before trading back below 0.7700 yesterday on the back of a stronger USD and risk off after the high US inflation. Industrial metals continue to be supportive of AUD despite the pullback.

Fed officials have pushed back hard against inflation fears which should allow risk sentiment to recover in the short term. It is difficult to say how long the Fed can look through these inflation figures but for now expecting AUDUSD to stay range bound, fading rallies above 0.7800 as the eventual break is more likely to be lower if US inflation persists.

Market Updates

EURUSD The Euro went back and forth yesterday as volatility picked up but without having any clear direction, despite a better-than-expected US jobless claims report. However, technically it looks like the EURUSD pair is trying to recover with a sustained move above 1.2110 to trigger an acceleration to the upside with 1.2150 and 1.2170 as next resistance levels.

GBPUSDThe British Pound remains biased to the upside in the near term from a technical standpoint with rising support from the 50-period moving average keeping short-sellers in check. A break above 1.4050 to indicate the presence of buyers with 1.4150 as nearest upside target ahead of US Retail Sales due to be released later this afternoon.

FTSE 100Today’s London session looks set to rebound following Wall Street’s impressive recovery yesterday, with FTSE futures back above the 200-period SMA overnight. However, a move above resistance at 7030 is needed to keep the strong bullish momentum ahead of US retail sales due later this afternoon..

DOW JONESBetter-than-expected US jobless claim figures delivered much needed support yesterday as the familiar “buy-the-dip” mentality pulled back the Dow Jones index from a technical collapse and back above the 34000 level. A sustained move above the 50-moving average today will trigger more buying with 34575 as nearest upside target. Alternatively, a move below the 200-period moving average would indicate the presence of sellers with 33800 as nearest support level, ahead of retail sales figures due later today.

GOLDGold ended the session in the green, hitting our long resistance target at $1830, with inflation fears still lurking in the background and the latest PPI data surprising to the upside. All eyes today on US Retail Sales data for a gauge of economic recovery strength, with technical indicators favoring further continued upside momentum with $1840 and $1860 as next resistance targets in extension.

USOILAnother round of restrictions in Singapore and Japan, an ongoing increase in cases in India, and a resurgence of the virus in China are weighing down on energy prices again, with WTI Crude shedding almost 3% in yesterday’s session. On another note, Colonial Pipeline now back online and adding to supply, with a move back to the resistance level at 64.35 looking favorable as the RSI points higher indicating strong upside momentum..

 

 

Rony Nehme

Rony Nehme

Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

 

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