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).

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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.


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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.


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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.


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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.


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Ichimoku cloud analysis on EURUSD

Trading 26 Fév 2021 Commentaire »

EURUSD is ending the week at its lowest levels. Having reached our target 1.2220, it is a bearish sign to see such a strong reversal. Price tried to break out above the Ichimoku cloud (Kumo) but it got rejected and is now challenging the lower cloud boundary. Trend remains neutral in Ichimoku terms.

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EURUSD remains inside the Kumo. Price has crossed below the tenkan-sen and the kijun-sen indicators. This is a sign of weakness. Breaking below 1.2045, where we find the Kumo lower boundary, this would be bearish. If the tenkan-sen (red line indicator) crosses below the kijun-sen (yellow line indicator) then we have another bearish signal. The Chikou span (black line indicator) is below the candlestick pattern and this is also bearish. So far the Ichimoku cloud indicator on a Daily basis provides us with bearish indications. EURUSD is more likely to continue lower.

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USDJPY reaches our next target of 106.70

Trading 26 Fév 2021 Commentaire »

USDJPY remains in a bullish trend. Price has reached the upper channel boundary at 106.70 which was our target that we mentioned in our previous post. The RSI continues to provide a warning to bulls as it was not able to make higher highs.

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Blue lines - bullish channel

Red line- bearish divergence

USDJPY is near the channel resistance. At current levels I prefer to be neutral and take any bullish profits. The RSI is providing a bearish divergence and I expect price to make another pull back lower. This divergence by the RSI is just a warning and not a reversal sign. So far price continues making higher highs and higher lows.

Concluding, having rallied from 104.92 to 106.70, USDJPY is now at a point where bulls need to be very cautious as a pull back is imminent.

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Ethereum still under pressure near February lows.

Trading 26 Fév 2021 Commentaire »

Ethereum is trading at $1,450 area after a strong bounce from $1,365 to $1,707. In our last analysis about Ethereum we mentioned that as long as price is below $1,776 we expect price to remain vulnerable to a move at least to recent lows of $1,365 and maybe lower.

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Blue rectangle - resistance

Black lines -Fibonacci retracement levels

ETH/USD got rejected at the 50% Fibonacci level and is now moving lower towards the recent lows. Breaking below $1,365 will be a bearish signal, implying more downside is to be expected. Next downside target if recent lows are broken is at $1,000-$1,050. Short-term resistance is at $1,707. Breaking above this level will surely push price towards $1,776 and maybe higher. For now price remains in bearish short-term trend after the top at $2,034.

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Gold price at its weekly lows

Trading 26 Fév 2021 Commentaire »

Gold price today broke below the double bottom formation and the November low at $1,763. Price has sharply moved lower towards $1,730 as expected by our previous analysis, making a low at $1,716. Short-term trend remains bearish.

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Blue lines - bearish channel

Red line - long-term support trend line

For some time in our analysis we pointed out that as long as price is below $1,850 the key pivot level, price was vulnerable to a move towards $1,750-$1,700. Also our Ichimoku cloud analysis has also pointed out that Gold was about to test major cloud support around $1,700. Today Gold price has reached the lower channel boundary and is very close to the long-term upward sloping support trend line at $1,690. So far there is no sign of a reversal or that of a major bottom.Gold bulls tried mid week to push price back above $1,820-30 but failed to do so. Price made another lower high and is now making lower lows. The Daily RSI is still making new lows and not in oversold area. Resistance is found now at $1,760, previous support. Any bounce should find strong resistance at $1,760 and next at $1,810.

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Indian Economy Grows In December Qtr

Trading 26 Fév 2021 Commentaire »

India's economy expanded in the final three months of 2020, thus exiting a severe recession caused by sharp contractions in the previous quarters due to the impact of one of the harshest lockdowns to battle the coronavirus pandemic.

Gross domestic product grew 0.4 percent in the three months to December, data from the statistics ministry showed Friday.

The decline in the September quarter was revised to 7.3 percent from 7.5 percent and the contraction in the June quarter was revised to a record 24.4 percent from 23.9 percent.

The GDP estimate for the fiscal year ending March 31 this year was revised to -8.0 percent from -7.7 percent projected on January 29. In the fiscal year 2019-20, the economy grew 4.0 percent.


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