EUR/USD. Geopolitics and Treasury Yield growth: Greenback’s bubble may burst soon

Trading 27 Fév 2021 Commentaire »

The euro-dollar pair did not stay in the support level of 1.2080 at the end of last week, ending the five-day trading session at 1.2073. The massive strengthening of the dollar took place in two stages - first, the market reacted to an air strike by the US Air Force on targets in Syria, then the dollar bulls received indirect support from US intelligence, whose representatives directly accused the Crown Prince of Saudi Arabia of organizing the assassination of opposition journalist Khashoggi. Such resonant events of a geopolitical nature could not help but affect the mood of investors. The demand for the safe dollar has sharply increased, especially against the backdrop of a sharp rise in Treasury yields - for example, the yield on 10-year bonds on Friday jumped to 1.530% (the highest value since January 2020).

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Take note that the fundamental factors of a geopolitical nature must be treated with a certain degree of caution, if only because the term of their "action" is very limited. Treasury yields growth is also based on rather shaky arguments, conditioned by market expectations, and not factual. We have seen such impulsive jumps from the dollar more than once - but in each case, dollar bulls retreated, not finding support from the members of the Federal Reserve or key macroeconomic reports. In my opinion, "reinforced concrete" fundamental factors are needed for a large-scale dollar rally, while the current situation resembles the erection of a castle on the sand.

Let's start with geopolitics. As you know, on Thursday, the US Air Force launched an airstrike in eastern Syria on the infrastructure of the Syrian armed groups supported by Iran (at least, this is how the Pentagon argued for these actions). After that, US President Joe Biden issued a statement in which he warned Tehran that it cannot "act with impunity on the world stage." The airstrike, which according to various estimates killed from 17 to 27 people, was a response to repeated attacks by militants on US military personnel and representatives of the international coalition in Iraq. Given the previous events related to the murder of a high-ranking Iranian general by the Americans, as well as given the general tension between the United States and Iran, many were interested in Tehran's response. Just a year ago, the world press often heard the idea that countries were "sliding towards a big war". However, this time the reaction of the Iranian authorities was restrained. Iran called the airstrikes a "violation of international law" and a "violation of the sovereignty and territorial integrity of Syria." A similar statement was made by the head of the Syrian Ministry of Foreign Affairs. In fact, this situation can be considered exhausted – at least in the context of discussing possible retaliatory actions on the part of Tehran or Damascus.

That is why the dollar stopped rising Friday afternoon (and the EUR/USD pair recovered to 1.2140): exactly until the moment when the US National Intelligence published a report on the role of the Saudi Arabian government in the assassination of opposition journalist Jamal Khashoggi. US intelligence officers directly accused Crown Prince Mohammed bin Salman of organizing this murder, which, I recall, was committed on the territory of the Saudi embassy in Turkey. In response to the report, the US Treasury and State Department imposed sanctions against dozens of Saudi officials, as well as against the rapid reaction forces, who are responsible for protecting Muhammad bin Salman.

I think it is not worth mentioning here once again that Saudi Arabia is the co-leader of the Coalition against the terrorist organization ISIS (banned on the territory of the Russian Federation) and an important partner of the United States on the Arabian Peninsula. Therefore, such a sharp attack by Washington against the de facto leader of this country has worried not only many politicians, but also participants in the foreign exchange market. The demand for the safe dollar increased again, due to which the EUR/USD bears impulsively pushed through the support level of 1.2080 (the middle line of the BB indicator, coinciding with the Kijun-sen line on the daily chart).

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However, in this situation, there is also a reverse side of the coin. So, according to CNN, Biden, despite the bellicose rhetoric against Riyadh, does not intend to apply sanctions against Crown Prince Mohammed bin Salman. Sources of journalists in the White House pointed to the difficulties that may emerge in the event of a break in relations with a "problematic, but still an ally" in an unstable region. Of course, this information is unofficial. But at the same time, it should be noted that in the public plane, Biden did not directly announce sanctions against the leadership of Saudi Arabia. He only noted that during a telephone conversation with the king of the country, he warned him of "appropriate responsibility". In other words, this fundamental factor can also have a short-term impact on the market (and, above all, on the US dollar).

As for the growth of the yield of Treasuries, the situation resembles a soap bubble. Among the main reasons for the dynamics are the general confidence of investors that the Fed members will abandon the ultra-soft monetary policy ahead of time, despite their own statements that they do not intend to do so. The situation itself looks somewhat absurd, since key macroeconomic reports (for example, Nonfarm or inflation) have recently disappointed market participants, and the rhetoric of the Fed members was dovish in nature. In particular, Fed Chairman Jerome Powell admitted that the US economy is at the very beginning of the "rehabilitation path", and it will take a long time for the country to recover to the target levels for inflation and employment. At the same time, he admitted that the US central bank can use all available levers of influence, using "the entire arsenal of monetary policy tools." A similar position was voiced by Powell's colleague, Board of Governors member Lael Brainard. At the same time, Fed members take into account the fact that there is a vaccination campaign in the country, and Congress should approve a large-scale package of additional assistance to the US economy in the spring. And at the same time, members of the US central bank insist that the "presence" of the Fed will be needed, including when the US economy shows signs of growth.

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Thus, in my opinion, the dollar's appreciation is temporary. If geopolitics does not come to the rescue of dollar bulls again, the EUR/USD pair will resume its growth in the medium term. The current decline can be used to open long positions, with the first target at 1.2130 (Tenkan-sen line on the daily chart). The main target (resistance level) is located slightly higher - at around 1.2200 (the upper border of the Kumo cloud on the same timeframe).

The material has been provided by InstaForex Company - www.instaforex.com

Trading plan for the GBP/USD pair for the week of March 1-5. New COT report (Commitments of Traders). The pound has moved

Trading 27 Fév 2021 Commentaire »

GBP/USD – 24H.

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The GBP/USD currency pair has continued its increasing upward movement in recent weeks. However, last Thursday and Friday, it began a collapse. We have long warned that the pound could collapse. It should be remembered that this currency has become more expensive for no obvious reason for more than five months. Even better to say this: this currency has become more expensive in the last five months when the fundamental background in the UK was negative. Earlier, we concluded that 60% of the increase in the money supply in America over the past year and 40% of the "speculative" factor played a role. However, on Thursday and Friday, the US dollar began to strengthen across the entire spectrum of the market. The reason for this movement, unfortunately, lies not in the desire of buyers to record a profit on the pound, but in strong macroeconomic statistics from overseas and the United States attack on Syria, which caused a surge in anti-risk sentiment. Thus, the upward trend may well resume. Moreover, if the $ 2 trillion stimulus package is approved by Congress, the US currency will almost certainly begin to depreciate again. The only question is when this process will begin since Congress is almost 100% likely to approve Joe Biden's initiative. From a technical point of view, the pound/dollar pair corrected to the critical line on the 24-hour timeframe. Therefore, a rebound from it can provoke the resumption of the upward movement. But overcoming the Kijun-sen line can lead to a new fall of the pair. So next week, everything will depend on this line.

COT report.

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During the last reporting week (February 16-22), the GBP/USD pair increased by 150 points. The last two COT reports signaled an increase in bullish sentiment among the "Non-commercial" group of traders. Therefore, in general, the mood of the major players and what is happening in the market for the pound/dollar pair coincided. During the last reporting week, non-profit traders opened a minuscule number of new contracts. A total of 1 thousand buy contracts and 1.2 thousand sell contracts. Thus, the net position for this group of traders has not changed, as well as the total number of open contracts. Therefore, there should have been no major changes in the market. Nevertheless, the pound continued to grow strongly, so we again return to the hypothesis that the demand for the pound remains relatively high, but a large role in strengthening the British currency is played by the high supply of the US dollar, which is cheaper because of this. COT reports do not take into account the supply and demand for the dollar, so if they change greatly in volume, then a particular currency can move without correlating with COT reports on it. This is approximately the picture we see for the pound sterling. The first indicator for all the time that is placed in the illustration does not show an unambiguous "bullish" mood. The green and red lines constantly intersect and change the direction of movement, which indicates the lack of a clear strategy for professional traders. But the pound continued to grow steadily all this time.

There have been some interesting events in the UK this week. In particular, the speech of the Chairman of the Bank of England, Andrew Bailey. However, until Thursday's events, the British pound continued to grow as if nothing had happened, ignoring all the macroeconomic data. Andrew Bailey's speech did not give any fundamentally new information to the markets, and on Thursday a package of strong macroeconomic statistics in the United States was released, which provoked the beginning of the growth of the US currency. Thus, the factors that led to the growth of the US currency at the end of this week are the same for the euro/dollar and pound/dollar pairs. The question is, what happens next? Will this two-day drop be the beginning of the end of the pound's rise? As we have already said, even taking into account the global fundamentals, the pound has grown very strongly. Therefore, the fall can also be very strong. Especially if the majority of traders start massively reducing long positions to fix a profit on the "bitcoin-like" pound. Therefore, next week you will need to track the news regarding the military operation in Syria. The stronger the new military conflict grows, the higher the probability of continued strengthening of the dollar. You should also carefully monitor the technical picture.

Trading plan for the week of March 1-5:

1) The pound/dollar pair maintains an upward trend, despite even a 2-day drop. Thus, on the 24-hour timeframe, the target remains at the level of 1.4129, which has already been worked out. More important is the Kijun-sen line. If there is a rebound from it, the pound will resume its movement to the north. At the beginning of the next trading week, the most important thing is to understand whether traders are ready for further "speculative" growth of the pair? Or is it time for profit-taking?

2) Sellers are still extremely weak, and the initiative in the market continues to be in the hands of buyers. In recent months, the bears do not even have enough strength to form a correction. The bulls helped the bears in the last two trading days of this week, but will the sellers themselves want to enter the market? As we have already said, the pound has few reasons for growth, but the US dollar will not have them if the US Congress approves a new package of stimulus measures.

Explanation of the illustrations:

Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.

Ichimoku indicators, Bollinger Bands, MACD.

Support and resistance areas – areas from which the price has repeatedly bounced before.

Indicator 1 on the COT charts – the net position size of each category of traders.

Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.

The material has been provided by InstaForex Company - www.instaforex.com

Trading plan for the EUR/USD pair for the week of March 1-5. New COT report (Commitments of Traders). The Syrian attack and

Trading 27 Fév 2021 Commentaire »

EUR/USD – 24H.

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Another trading week on the forex market ended with a collapse of the euro/dollar pair quotes and the reasons for this collapse are not entirely clear. More precisely, you can think of as many reasons as you want, any fundamental event can be "tied" to any movement in the market if you want. But we would like to find the true cause of what happened on Friday. By the way, it should be noted that the fall in the pair's quotes began on Thursday and continued on Friday. So, the process of strengthening the US currency began on Thursday, February 25 in the afternoon. That is, in the US trading session. At the same time, the British pound sterling began its fall also around this time. So, the first conclusion is that the fall of both major pairs is connected with America. In the United States on Thursday, a package of important macroeconomic statistics was released (we will talk about it below), which could well provoke such a movement, although, in the last year, market participants very often ignore statistics. But why did the dollar continue to rise on Friday? On the one hand, everything can be explained by technical factors. The pair went only 170 points down in two days. Yes, the movement is strong, but not a collapse. For example, on the 16th-17th, the pair went down 130 points, but no one panicked about it. Therefore, from our point of view, several factors simply coincided in the market at the end of last week, which caused an unusually strong (over the past year) strengthening of the US currency. On the 24-hour timeframe, you can see that the price bounced from the 23.6% Fibonacci level and the upper border of the Ichimoku cloud. Unfortunately, the option with a long-term upward movement may be shelved or canceled altogether. If the pair is fixed below the 50.0% Fibonacci level on the 24-hour timeframe, this will significantly increase the probability of further growth of the US dollar.

COT report.

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During the last reporting week (February 16-22), the EUR/USD pair increased by 30 points. In recent weeks, we have insisted on the option of continuing the long-term upward trend. This was partly supported by the latest COT reports. Over the past two weeks, the mood of large traders has not changed dramatically, and at the time of publication of the penultimate report, the number of open long positions for professional traders exceeded the number of open short positions by three times. Thus, a bullish mood is on the face. The latest COT report also didn't show any major changes. During the reporting week, a group of "Non-commercial" traders opened 6.5 thousand buy contracts and sell contracts. Thus, the net position of this group of traders has not changed in any way, and the mood has not become more bullish or more bearish. However, for the third week in a row, the first indicator in the illustration indicates that the mood of non-commercial traders is unchanged. The green and red lines did not rise or fall during these three weeks. Thus, the big players took a wait-and-see attitude. Well, the days with the collapse of the pair (Thursday and Friday of this week) were not included in the new COT report. Thus, since the beginning of September last year, major players have been aiming for a downward trend, however, global fundamental factors prevent them from starting it. We have talked about the global fundamental factors more than once, everything boils down to a huge increase in the US money supply in 2020.

There were many important fundamental events this week. First, the macroeconomic statistics in the United States, which finally aroused the interest of traders and they worked it out. Second, two speeches of Jerome Powell to Congress. Third, the United States attack on Syria, which was the first military operation since Joe Biden took office. We have already talked about statistics. It turned out to be strong and could provoke a rise in the dollar. Jerome Powell's speeches did not affect the mood of traders. But the third factor could cause an additional strengthening of the US currency. The fact is that in recent years, it is the US dollar that has become the "reserve currency". Previously, these were the Japanese yen or the Swiss franc. Recall that the "reserve currency" is a currency that investors actively buy to preserve the value of their assets in various emergencies. Think back to March of last year. Before the prolonged fall of the US currency began, the dollar rose by 8 cents in ten days. This is the time when the "coronavirus" began to take over the whole world and was officially recognized as a pandemic. The same is true of the ongoing conflicts in the Middle East. As soon as there is another risk of a new conflict, traders begin to transfer their money from risky assets to less risky ones. The demand for the dollar at such a time increases, which leads to its strengthening. So, from our point of view, what happened at the end of this working week is just a coincidence of two strong factors.

Trading plan for the week of March 1-5:

1) On the 24-hour timeframe, the whole technical picture is confused. The pair remains inside the Ichimoku cloud for the time being, and global fundamentals continue to support the pair's further growth. However, now you will need to observe how the sellers will behave. Above the 50.0% Fibonacci level, there is a high probability of resuming the upward trend, however, the pair's downward movement must stop as quickly as possible.

2) It is still very early to talk about the beginning of the formation of a new downward trend. The pair has gone down only 170 points so far. However, if the mood of traders abruptly changes to bearish, this may cause the pair's quotes to continue falling. We do not believe in this option yet, as we believe that the new package of stimulus measures in the US will lead to a new increase in the money supply and a new increase in the supply of the US currency on the market, which will provoke a new fall in the dollar.

Explanation of the illustrations:

Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.

Ichimoku indicators, Bollinger Bands, MACD.

Support and resistance areas – areas from which the price has repeatedly bounced before.

Indicator 1 on the COT charts – the net position size of each category of traders.

Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.

The material has been provided by InstaForex Company - www.instaforex.com

Dollar Scores Solid Gains Against Peers

Trading 27 Fév 2021 Commentaire »

The U.S. dollar firmed up against its peers on Friday as fairly upbeat economic data raised prospects of the Federal Reserve withdrawing stimulus sooner than anticipated.

Meanwhile, speculation is rife that U.S. President Joe Biden's fiscal spending package will not be as large as the proposed $1.9 trillion.

The Commerce Department said personal income spiked by 10% in January after rising by 0.6 percent in December. Economists had expected personal income to soar by 9.5%.

The report also showed a significant rebound in personal spending, which surged up by 2.4% in January after falling by a revised 0.4% in December.

MNI Indicators released a report on Friday showing a bigger than expected slowdown in the pace of growth in Chicago-area business activity in the month of February.

The report said MNI Indicators' Chicago business barometer dropped to 59.5 in February after jumping to a more than two-year high of 63.8 in January.

The dollar index rose to 90.97, gaining nearly 1%.

Against the euro, the dollar was stronger by over 0.8% at 1.2074.

The pound sterling weakened against the dollar, fetching $1.3924 a unit, more than 0.6% less than Thursday's closing level.

The Yen slid to 106.56 a dollar, losing ground from 106.25. Industrial output in Japan was up a seasonally adjusted 4.2% on month in January, according to data released by the Ministry of Economy, Trade and Industry said.

Retail sales in Japan was down a seasonally adjusted 0.5% on month in January, coming in at 12.097 trillion yen. Overall consumer prices in the Tokyo region of Japan - considered a leading indicator for the nationwide trend - were down 0.3% on year in February, following the 0.5% decline in January.

The Aussie was weak with the AUD/USD quoting at 0.7702, falling from 0.7803

The Swiss franc weakened to 0.9085, down more than 0.4% from 0.9048 a dollar. Data from the State Secretariat for Economic Affairs showed that Switzerland's economic growth eased sharply in the fourth quarter as the restrictions imposed to contain the coronavirus pandemic weighed heavily on the service sector.

Gross domestic product gained 0.3% sequentially, much slower than the 7.6% expansion seen in the third quarter. GDP was forecast to climb 0.1%.

The Loonie slipped to 1.2738 falling more than 1% from 1.2603. Data from Statistics Canada showed Canada's industrial product price index rose 2% month-over-month in January, after rising by an upwardly revised 1.7% in December. The index surged 4% year-on-year in January, compared to an earlier reading of a 3.8%.

Meanwhile, Canada's raw material price index was up 5.7% last month, after rising by 3.5% in December 2020.


The material has been provided by InstaForex Company - www.instaforex.com

Crude Oil Futures Settle Sharply Lower

Trading 27 Fév 2021 Commentaire »

Crude oil prices drifted lower on Friday, as the dollar gained in strength amid rising bond yields and the latest batch encouraging economic data.

Reports that U.S. supplies are picking up fast after last week's cold-induced shutdown of facilities hurt production contributed as well to the drop in oil prices.

West Texas Intermediate Crude oil futures for April ended up $2.03 or about 3.2% at $61.50 a barrel.

However, WTI crude oil futures gained nearly 4% this week. The contract gained almost 18% in February.

Brent Crude futures shed $2.46 or about 3.7% today, settling at $64.42 a barrel. The contract gained 2.5% in the week, and rose as much as 15% in February.

According to a report from Baker Hughes, oil and natural gas rigs count in the U.S. surged for a seventh month, rising by 5 to 402 this week. However, the addition of 18 rigs in February, is much less compared to the addition of 33 rigs and 31 rigs in January and December, respectively.

It is widely expected that the members of the Organization of the Petroleum Exporting Countries (OPEC), and allies, together called OPEC+, will consider increasing crude production by 500,000 barrels per day from April.


The material has been provided by InstaForex Company - www.instaforex.com

Treasuries Fluctuate Before Closing Notably Higher

Trading 27 Fév 2021 Commentaire »

After moving rebounding from yesterday's weakness early in the session, treasuries fluctuated over the course of the trading day on Friday.

Bond prices pulled back off their early highs in morning trading but managed to move back to the upside in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.8 basis points to 1.460 percent.

With the pullback on the day, the ten-year yield gave back ground after ending the previous session at its highest closing level in a year.

Treasuries initially benefited from traders moving into bonds following the recent spike in yields, although buying interest was somewhat subdued.

The subsequent pullback by treasuries came following the release of another batch of largely upbeat U.S. economic data.

A report from the Commerce Department showed U.S. personal income skyrocketed in the month of January, reflecting the issuance of $600 stimulus checks.

The Commerce Department said personal income spiked by 10.0 percent in January after rising by 0.6 percent in December. Economists had expected personal income to soar by 9.5 percent.

The report also showed a significant rebound in personal spending, which surged up by 2.4 percent in January after falling by a revised 0.4 percent in December.

Economists had expected personal spending to jump by 2.5 percent compared to the 0.2 percent dip originally reported for the previous month.

However, treasuries eventually showed a strong move back to the upside as the report also showed inflation remained relatively tame

A reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth ticked up to 1.5 percent in January from 1.4 percent in December.

Concerns about inflation have recently weighed on treasuries despite Fed Chair Jerome Powell's repeated assurances the central bank plans to maintain interest rates at near-zero levels for the foreseeable future.

The Labor Department's closely watched monthly jobs report is likely to be in the spotlight next week, while reports on manufacturing and service sector activity, factory orders and the U.S. trade deficit may also attract some attention.

The Federal Reserve is also scheduled to release its Beige Book, a compilation of economic evidence from the twelve Fed districts.


The material has been provided by InstaForex Company - www.instaforex.com

Gold Futures Fall Sharply, Extend Losses To 4th Straight Session

Trading 27 Fév 2021 Commentaire »

Gold futures drifted lower on Friday, extending losses to a fourth straight session, weighed down by rising U.S. Treasury yields.

The yield on 10-year Treasury note dropped a bit today after hitting a 52-week high on Thursday, it still remained a major factor that contributed to the waning demand for the safe-haven metal.

Stronger-than-expected U.S. economic data released overnight also added to the fears that the Fed could withdraw stimulus sooner than anticipated.

Meanwhile, there is speculation that U.S. President Joe Biden's fiscal spending package will not be as large as the proposed $1.9 trillion.

The dollar's sharp uptick too weighed on gold prices. The dollar index rose to 90.92, gaining more than 0.8%. It was last seen hovering around 90.80, up 0.74% from Thursday's close.

Gold futures for April ended down $46.60 or about 2.6% at $1,728.80 an ounce, the lowest close in about eight months. Gold futures shed more than 6.5% in February.

Silver futures for May ended lower by $1.245 at $26.440 an ounce, while Copper futures for May settled at $4.0925 per pound, down $0.1710 from previous close.

The Commerce Department said personal income spiked by 10% in January after rising by 0.6 percent in December. Economists had expected personal income to soar by 9.5%.

The report also showed a significant rebound in personal spending, which surged up by 2.4% in January after falling by a revised 0.4% in December.

MNI Indicators released a report on Friday showing a bigger than expected slowdown in the pace of growth in Chicago-area business activity in the month of February.

The report said MNI Indicators' Chicago business barometer dropped to 59.5 in February after jumping to a more than two-year high of 63.8 in January.


The material has been provided by InstaForex Company - www.instaforex.com