January 13, 2021

Daily Market Analysis

Market Focus

US stocks edged higher and benchmark Treasury note yields lingered at 10-month highs as investors mulled the prospects of the economic recovery and vaccine rollout. The SP 500 closed in the green after fluctuating between gains and losses most of the trading session, with the energy, materials and consumer discretionary sectors leading gainers. The Dow Jones Industrial and Nasdaq Composite rose more than the benchmark index. Crude Oil approached a 11-month high as the dollar weakened following a three-day rally. Corn futures surged by the exchange limit to the highest level for a most-active contract since May 2014.

The mood across markets remained mostly positive even as investors assessed how the rise in Treasury yields changes the financial landscape. While progress on a vaccine gives reason to be hopeful, there are lingering concerns over the speculative excess and froth that’s driven stock markets to all-time highs in the middle of a pandemic.

Yields on Treasury 10-year notes pared an earlier rise after a government auction of $38 billion of the securities was met with solid demand. The spread between the rate on the two- and 10-year notes had risen every single day this year as investors bet on additional US fiscal stimulus, spurring more bond issuance and higher yields on longer-maturity Treasuries.

According to David Bianco, chief investment officer of the Americas at DWS Group, “what I think investors are most focused on is the digesting of what is shifting fiscal policy. We’re beginning to lose the anchor on some long-term key benchmark interest rates.”

Market Wrap

Main Pairs Movement

EURUSD has seen significant upside in recent trade, rallying above the Monday high and the 1.2200 level. The pair had previously been rangebound either side of the 1.2150 mark, before a broad weakening of the US dollar since the start of US trading hours that sent it to the bottom of the G10 performance table. The Aussie resumed its advance in the US afternoon, as the greenback keeps losing its shine. Wall Street’s modest advance providing additional support. Despite the downside in USDCAD, CAD net long positions drifted lower but have held in positive territory for the past three weeks having bounced sharply in late December.

The US Dollar Index has seen modest losses on Tuesday and is eyeing a test of weekly lows in the 90.00s. WTI rallies above the $53.00 level, eyes test of the February 2020 $54.45 high during the European trading session, but soon drop back to the $52.50 by the start of US trading hours.

Technical Analysis:

GBPUSD (4 Hour Chart)

Based on the statements made by Bank of England Governor Andrew Bailey and the leading position UK currently holds among its developed countries peers on vaccination races, the GBP has been outperforming most G10 currencies at the moment. During the early European session, BoE Governor Andrew Bailey claimed that the “negative rates” is a controversial issue and that there are a lot of issues with negative interest rates, which in turn, becomes a statement that provided the markets with the strongest sense of the Governor’s rebuke of the policy. Bailey’s words backed the global investors to put their bet on Sterling. On top of that, given that UK has reported to have vaccinated 4% of its overall population their first jabs (the U.S. only has 3% of its population vaccinated), markets participants are gradually shifting their interest towards the UK because the faster a country can get its people vaccinated, the more prospering the country’s economic outlook can be.

With the Cable pair recently broke above the 1.3620 resistance and is still heading north, it is likely that the fresh buying demands would push the pair to around its next resistance at 1.3673. This bullish run is supported by the MACD, and with the RSI currently fluctuating around the lower 60, there seems to be some room for the pair to further extend its journey up north. On the flip side, if the pair dipped low, the first cushion would be found around 1.3547, then 1.3505.

Resistance: 1.3620, 1.3673, 1.3700

Support: 1.3547, 1.3505, 1.3450

USDJPY 4 Hour Chart)

After advancing towards the multi-weekly highs around 104.40 yesterday, the diminishing DXY (which is trading around 90.085 at the time of writing) has pulled the USDJPY back down below the 104 price level as the pair is now fluctuating near 103.80. The weakness surrounding the USD continued to be the main factors that prevent the USDJPY from further advancing. Particularly speaking, as the 10-year yields dropped back from the highs above 1.17% after a strong auction and a subsequent drop in yields appears to be weighing on the USDJPY pair. After breaking below the 104 price zone, which the pair has been consolidative above, the weakness surrounding the USD is more likely to pull the pair down to its most immediate support at 103.79 then to find fresh demand for the pair to form a rebound. Not to mention the fact that the RSI of the pair is still sitting around the high 40s, suggesting that there is still room for the pair to dive before entering the oversold region and begin a positive correction. If the bearish trend extends, global investors can expect the pair to move towards the 103.40.

Resistance: 104.25, 104.08

Support: 103.79, 103.63, 103.40

XAUUSD (4 Hour Chart)

XAUUSD climbed back up substantially after falling sharply near $1938 level. The pair is now trading around $1850, which is about the same level it closed on Monday. The extensive bounce back of XAUUSD is largely caused by the weighed down greenback amid an improved markets’ sentiment. Technically speaking, the gold is still under bearish pressure as the 60-Day SMAVG still hovers above the 20-Day SMAVG. Now, given that the RSI is trending around 45, this reading suggests that without any confirmative news or change in markets’ sentiment, the pair is likely to remain consolidative between $1863 and $1838 because no trading bias has taken over the price action of the pair. If the pair can penetrate the resistance above $1863, the bullish uptrend can take XAUUSD towards $1878. Conversely, the cushion for XAUUSD traders can be found near 0.618 Fibonacci Retracement at $1844.56, then followed by $1838 and $1827.

Resistance: 1863, 1878, 1900

Support: 1844.56, 1838, 1827

Economic Data

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