Date Wednesday May 26, 2021
Drivers
The German IFO index rose to 99.2, the highest in 2 years which confirms the EU recovery theme. Meanwhile, US Consumer Confidence fell to 117.2 as expectations pulled back. This shows how the US is further along the recovery and may be past the peak in its data.
Furthermore, comments from Fed Vice Richard Clarida highlighting that the recent 4.2% CPI print was surprisingly higher than the Fed’s expectations and that they may be at a point where they can begin to discuss scaling back the pace of asset purchases pushed benchmark yields on US Treasuries to 1.55 and the US Dollar to a 4-year low, with gold prices topping $1900 in early session today, as traders continue to believe that inflation remains the single biggest threat, and there is no better hedge against inflation than gold.
There will be a lot of focus on tapering at the upcoming FOMC meeting June 15-16.
USDCNH back above 6.4000 this morning but the China fix was in line which will encourage the market to sell USDCNH as PBOC clearly not pushing back too hard against Yuan strength yet. PBOC supporting USDCNH is likely to lead to USD selling in G10 on London open as we saw yesterday.
We are approaching month end and with a holiday in the US on Monday most month end flows are likely to executed Thursday and Friday. We could see some value date month end USD demand today.
Plenty of EURUSD will have been bought through 1.2245 and 50 yesterday as the previous high and barrier levels were broken. EUR likely to be lower through the June 10th ECB meeting as the market expectations for PEPP tapering are too high given Lagarde’s comments last week. Difficult to be short EURUSD with USDCNH under pressure so better to play this theme in the crosses. EURNZD has topped out above 1.7000 a few times.
ECB could prove similar to the Fed in showing a willingness to look through temporary inflation spikes and to continue supporting the early stages of the recovery. It has proved wise to listen to Powell rather than the more hawkish members such as Kaplan. It may also prove wise to listen to what Lagarde is telling us.

Market Updates

EURUSD The Euro jumped to a fresh intra-day high of nearly 1.2270 earlier this morning during the Asian trade session, as USD continues its downtrend, after some comments Fed Vice Richard Clarida highlighting that the recent 4.2% CPI print was surprisingly higher than the Fed’s expectations. At this point, the EURUSD is still supported by the 50-period SMA and the next key resistance is the 1.2280 level, which if breached will pave the way to 1.2340. However, the RSI looks bearish which in turn may attract some short-term sellers.

GBPUSDThe British Pound falls below support at 1.4170 with the bullish momentum weakening following a third failed attempt to move beyond 1.4210, as investors become increasingly worried over the Indian variant of the coronavirus in the UK, with a move below the 50-period SMA to trigger an acceleration to the downside with 1.4110 as nearest support level.

FTSE 100The FTSE100 index seems to be stalling with bulls finding it hard to push prices back to record levels, as investors become increasingly worried over the Indian variant of the coronavirus in the UK. It is also worth noting that from a technical perspective, the lower lows taken from the bearish trendline are about to connect with the 200-period SMA, and therefore a move below the 200-period SMA at this point may signal a shift in the main trend from bullish to bearish.

DOW JONESEquities reversed lower midday Tuesday with the Dow Jones Industrial Average erasing earlier gains after consumer confidence fell more than expected, despite good news on the vaccine front stating that 50% of Americans over 18 are now fully vaccinated. Technically speaking, the 50-period SMA is so far still acting as support, but a sustained move below it may trigger additional selling with the 200-period SMA around 34000 as nearest target.

DAX 30 – Losses in major mining stocks hampered a rally in technology shares along with a billion-dollar property deal, as the DAX30 hit our support target at 15460 in yesterday’s session. The German index managed to pullback towards 15540 resistance level in early trade today, with technicals favoring a retest of 15460 with 15400 as next support target in extension, as long as key 15540 resistance level holds.

GOLDThe yellow metal hit both our resistance targets at $1890 and $1900, topping $1900 in early session today, as traders continue to believe that inflation remains the single biggest threat, and there is no better hedge against inflation than gold. Weaker-than-expected New Home Sales and Consumer Confidence data out of the US helped push gold prices higher with technicals favoring a retracement lower with key $1890 support level to hold.

USOILWTI Crude held around 4-month highs, printing above $66 in early trade today, after weekly API inventory data registered a surprise drawdown of -0.439Mb vs. a previous buildup of 0.62Mb. Focus shifts today towards official EIA data (with expectations of a drawdown of -1.279Mb) along with ongoing talks in Vienna, as technicals favor higher prints to be confirmed on an hourly close above $66.35 with $66.66 and $67 as next resistance targets.

 

 

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.

 

Disclaimer: This information is only for educational purposes and is not an investment recommendation. The information here has been created by SquaredFinancial. All examples and analysis used herein are of the personal opinions of SquaredFinancial. All examples and analysis are intended for these purposes and should not be considered as specific investment advice. The risk of loss in trading securities, options, futures, and forex can be substantial. Customers must consider all relevant risk factors including their own personal financial situation before trading.