May 25, 2021

Daily Market Analysis

Market Focus

US equities market kicked off the week with some handsome gains. The Nasdaq 100 and S&P 500 rose 1.82% and 1.14% respectively, while the Dow Jones Industrial Index lagged slightly behind. Technology shares led gains across the board as inflation concerns are being addressed by Fed officials today.

The US said Americans should avoid traveling to Japan, with the country under a state of emergency over a widening COVID-19 outbreak that raised doubts about Tokyo’s plans to host the Olympics on July 23rd. The US State Department escalate its travel advisory to level four on Japan as the country has been struggling with vaccine rollout, and thus the rising number of infections.

Tesla’s CEO Elon Musk continues to roil the crypto world, sending tweets to indicate support greener operation of crypto mining. Bitcoin advanced as much as 19% to around $40,000 following the tweets. It has plunged as low as $31,132 on Sunday.

Main Pairs Movement:

Euro gained 0.3% against its US counterpart to start the week. Federal Reserve officials pushed back against the threat that high inflation will stay, saying they would not be surprised to see bottlenecks and supply shortages will bump up prices in the short term. St. Louis’s James Bullard said “A very important part of inflation dynamics is longer-term inflation expectations and those have been extremely well anchored, implying that if we saw some development pushing inflation up I wouldn’t expect that to get embedded in the ongoing inflation rate.

Cable rose as little as 0.06% on Monday. The pair mainly followed today’s trend of dollar weakness, but vaccine optimism continues to act as a backdrop for the Sterling. Boris Johnson’s plan to reopen UK is on track as data shows over 60 million shots were given out, 72% of adults have received a first dose of vaccine, and 43% have received both shots. Government’s goal is to fully remove social restrictions by June 21, though some worried the emergence of the new variant, but a report from Public Health England suggests vaccines from Pfizer Inc. and AstraZeneca Plc are highly effective against the strain. It is a big deal if UK can beat EU and US to be the first economy immunized to COVID-19, thus setting the Pound for an upward trajectory.

Aussie fell around 0.4% during Asian session, but reversed upward in US session, closed the day up 0.22%. China officials are trying to temper overheating commodities prices, and pledge severe punishment for violations in commodities markets. Iron Ore price, one of the most exported commodities from Australia, is suffering from the sudden announcement, and looks to extend declines this week.

Technical Analysis:

EURUSD (Daily Chart)

Euro dollar swing traders could be baffled by the pairs undecisive moves in the past couple days, rose and fell around 50 pips each day. Horizontal support of 1.217 was under fire, and it survived, showing the resilient support level is worthy to defend. Now that we have established a rather strong foundation, the shared currency is set to edge higher against the dollar greenback, likely toward yearly high of 1.235. Recent German bund yields keep rising, with the 10-year yield recovered to -0.142% from January’s -0.6%, and exerts pressure on its US counterpart.

Resistance: 1,235

Support: 1.2175, 1.21, 1.195

XAUUSD (Daily Chart)

Gold has been on a decent rally after shrugged off the $1800 hurdle. However, we have witnessed some exhaustion from the bulls as price spent the past three trading days within a tight range ahead of $1888, which marks the 23.6% Fibonacci Retracement level. Judging the Relative Strength Index of 73, we should be expecting some pullback sooner or later. The odds of a larger retracement would significantly increase if it falls below $1874 with a solid decisive candle. That being said, an interception between previous descending trendline and 38.2 Fibonacci line at $1847 looks like a good place to rest on before climbing back towards $1900.

Resistance: 1900, 1955

Support: 1848, 1815, 1780

USDCAD (Weekly Chart)

Bidders on USDCAD must be scratching their head as the pair pierced through multiple big support lines in a weekly timeframe, and the slide just seem non-stoppable. It is currently sitting north 2015’s low of 1.2065, price did rebound from the support line just like other times in the past several months, in which bidders failed to defend after all. The bears could definitely enjoy some extra gains if the current support line collapses. The nearest key level below would be 1.1671, dated back in December 2014. It is truly amazing for Canadian dollar to pull off such incredible bullish run, RSI of 23 indicated extreme oversold condition, a number that was last seen during the Financial Crisis, and yet we are about to see further plunges.

Resistance: 1.2, 1.245

Support: 1.1671

Economic Data