The five largest companies in terms of market value in the S&P 500 (Apple, Microsoft, Amazon, Facebook, Alphabet, and Tesla) are the most important earnings for sentiment this week.

This week seven out the 10 largest companies in the S&P 500 will report earnings representing 15% of the MSCI World Index. Besides these mega companies hundreds of the world's most important companies across banking, energy, health care, social media and online advertising will report earnings. It is basically make or break for global equities this week, and the show starts Monday with Tesla where expectations are so high that it is almost an unbearable task for the management to deliver despite recently strong Q1 delivery numbers.  

SPX500 D1 04 26 2021 1357

Tesla expectations are high for Q1 results with revenue at $10.4bn up 74% y/y, but down from Q4 2020, driven by strong demand for electric vehicles. Tesla’s outlook is key, and investors will be looking at any signs of weakness from increased competition and pricing pressure in China.

TSLA.us D1 04 26 2021 1403

 

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EUR GBP 20210322 12.54

The Bank of England meeting came and went with lack of concern on the steep backup in longer term yields of late suggests that the bank retains the same comfort that fiscal stimulus is sufficiently strong in the UK to overwhelm any concern about longer rates rising. EURGBP champing at the bit for more declines – are we set for a run all the way to 0.8300? The market is getting more aggressive in pricing in BoE hikes than Fed hikes for the late 2022 time frame. Local resistance at 1.4000 in GBPUSD quite clear-cut for whether that pair can press higher.

GBP USD 20210322 12.55

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Gold’s inability to build on the previous weeks strong rejection below $1680, now a double bottom,helped trigger a 16% reduction in the net-long to 64.8k lots. The reporting week ended before Thursday’s technical breakout above $1765, a development that is likely to have attracted fresh fund buying from momentum and trend following strategies.

Spot Gold 20210419 14.39

 

Gold (XAUUSD) ticked higher in Asia overnight after closing above the key resistance-turned-support area at $1760-65/oz on Friday.  Partly driven by a continued rise in global corona virus cases worldwide supporting safe havens like Treasuries and gold. Continued focus on dollar and yields as well as geopolitical developments between the U.S. and Russia. Important resistance levels, using Fibonacci, at $1785 (double top) and $1818.

Crude oil  +7% rally in the week to March 9 that was partly driven by a temporary risk spike following the attempted attack on Saudi oil installations, only triggered a small 2.8k lots net increase in the combined crude oil long in WTI (+7.6k) and Brent (-4.8k). During the past four weeks a 12% rally in crude oil has triggered no additional increase in the combined net long which currently stands at a 2-1/2-year high at 731k lots. While rising US bond yields and the stronger dollar has lowered investment appetite, these developments also support our view that crude oil has reached a level beyond which can be hard to justify given current fundamentals. 

USOil D1 03 15 2021 1301

A two-week record draw in US fuel stocks, following the Texas freeze disruption, helped attract net buying in both gasoline and distillates. A natural gas price slump on warmer weather driving less demand triggered a 14% reduction in the net long to 284k lots.
Speculators cut bullish commodity bets for a second week with rising yields and a stronger dollar triggering some risk adversity. The combined net long across 24 major futures contracts was reduced by 4% to 2.6 million lots, representing a nominal value of $129.2 billion.

The March Ivey PMI just missed a record reading at a stunning 72.9, imitating the strength in the ISM surveys south of the border recently, even as Canada’s vaccination effort badly lags that of the US. But a bit of trend exhaustion and crude oil bogged down into a range has seen an interesting recent reversal in USDCAD after a poke all the way below 1.2400 in March. Inverted head and shoulders formation with the sloping neckline coming in not far above 1.2600. The commodity dollars could be in for another round of consolidation lower before putting up a stand further down the line. A break of resistance here would likely shift the focus to the big 1.3000 area.

USD CAD 20210412 13.56

Fed Chair Powell failed to signal a sufficient level of concern on rising US treasury yields yesterday to soothe this market, which threw another tantrum, sending treasuries lower and yields soaring, and sending equities into a new tailspin while the US dollar went nearly straight up. The Fed will eventually act, but only once financial conditions are sufficiently dire to give him the cover to do so, as he can argue that sharply weaker financial conditions would feed through to Main Street USA and present disinflationary and labor market risks. The Fed may be happy for some measure of speculative froth to come out of this market rather than to be seen riding too quickly to the rescue. 

The Bank of Japan’s Kuroda made comments rejecting the notion in a parliamentary hearing that the BoJ is ready to expand the range of trading for Japanese government bonds. The 10-year yield was smashed back lower to around 0.07% after rising as high as 0.15% recently. 

USDJPY D1 03 08 2021 1928

USDJPY upside action accelerated again overnight as BoJ Governor Kuroda rejected the notion that the Japanese yield curve should be allowed to lift, which smashed long JGB yields back lower. To me, the pace of recent gains in USDJPY is getting to be too much too fast and will inevitably hit a brick wall at some point down the road – either once the Fed steps in with something to counteract the move in yields, or, perhaps more likely in the near term, when the move higher simply exhausts itself of its own accord. A reversal in all JPY crosses would prove most climactic if asset markets tank badly and finally trigger a bid into bonds. But for now, traders shouldn’t dare step in front of an onrushing train and should consider JPY call option strategies for any contrarian trading notions to the present trend  with a measure of patience and building a position over multiple sessions. Next big round level is 110 here.

The European Commission negotiated on behalf of all the EU countries with the vaccine manufacturers and succeeded in buying the jabs cheaply, holding the drug companies to account and obtaining enough to vaccinate the whole of the EU.

Unfortunately, side effects included delays in delivery, bickering between the EU states and a slower vaccination program than either the US or the UK. The result: a weaker Euro on the likelihood that the EU economy will recover more slowly from the slump caused by the pandemic than other nations and regions. Moreover, that’s a perception that will likely persist for many more months and that, in turn, will likely mean the Euro weakens further.  

As the chart above shows, the Euro has been climbing against the Yen for months now; indeed EUR/JPY has been advancing since the start of the pandemic, which is remarkable given that the Yen was once seen as a safe haven. There has only been one safe haven over the past year and that, of course, has been the US Dollar.

In the end of the first quarter, there were signs that the Yen was coming back into go-to currencies for traders seeking havens and that suggests it could well strengthen in the second quarter if the global economic recovery fails to emerge at quite the optimistic rate the markets seem to be expecting.

So, putting together a weak Euro with a stronger Yen, there is plenty of scope for EUR/JPY to weaken if  like me  you think the recovery will be rather bumpier than current market pricing implies.

 

 

EURJPY D1 04 05 2021 1050

One of the contributing factors to the heady gyrations is the Fed not sufficiently addressing the issue of the US Treasury needing to draw down its account at the Fed from the current $1.6+ trillion to $120 billion, which creates all manner of havoc at the shortest end of the curve as banks and others in the financial system run out of places to park this money in “risk free” assets like t-bills,
Something was a bit of loud statement at the time from the Powell Fed that the market did not pick up on was his observation this week at testimony before Congress that all of the rise in treasury yields of late was merely a reflection of rising optimism for the economic outlook. What about the scary levels of treasury issuance?

The additional damage may not need be significant if the Fed first: moves both makes the technical moves need to avoid further system risk linked to the US treasury’s monumental shift of liquidity, but also second: provide some obvious hint that it will only allow yields to go so high before stepping in with yield curve control There is the irony and the chicken and egg question – the Fed may first need some more damage before it has the coverage to do something as drastic as yield curve control. So if the first move is merely the technical one on money markets to deal with liquidity issues and no hint at yield-curve-control, we could get dragged through the mud of a bigger traditional risk off move here for a while. Let’s make no mistake: yield curve control is a must, or the Fed will have no chance of seeing its inflation and employment targets met. In the beginning, we may only see this in baby steps, like a promise to cap two- or three year yields (the latter like Australia’s RBA). That would likely be enough for a while, even if the Fed would like have to shift to five years and longer if rising yields persist and this continues to plague risk appetite. 

EURUSD D1 03 01 2021 1329

This reversal in EURUSD is an ugly one for the bulls, coming as it did just after the pair had spiked through a major resistance level just below 1.2200. A weak close  would point to a test of the 1.2000 and possibly the even more important existential level for the uptrend at 1.1900.  Already with this latest burst higher in yields spreading to Europe earlier this week, we saw ECB President Lagarde out declaring that that the central bank is vigilant on the need to watch yields.

The Japanese yen seems the most sensitive to US yield moves, and the USDJPY consolidation was very tight relative to the size of the prior range and the size of the move in other JPY crosses. If US yields poke back higher, the big 110.00 area in USDJPY could come under fire  the last level that bars the way to 115.00 there. On the flip-side, if rising yields go away as a threat for a time and the “Asian malaise” that is showing signs of moving into US equities as well, both the USD and the JPY could add on to their recent strength. 

USD JPY 20210329 13.37

So far, in USDJPY has been very shallow and now we have the pair looking back toward the cycle highs. The 110.00 level a bit higher continues to look important as the approximate current top of the years-old descending channel, but also as a psychological level of  note and the last area before the more well-defined 114.50 area  Japan’s financial year end is March 31.

Britain's rapid vaccination campaign and nationwide lockdown have yielded a sharp drop in COVID-19 infections, hospitalizations, and deaths, raising hopes for a quicker return to normality.
The promise of a slow exit from the lockdown is that it will allow vaccinating more people and also diminish the chances of having yet another shuttering of the economy.
GBP/USD is also weighed down by fresh dollar strength, stemming from higher US yields. Expectations of stronger growth  perhaps even overheating due to stimulus  is pushing investors away from US Treasuries. So far, the central bank has seen it is as a healthy sign of recovery.
Powell is set to testify before Congress on Tuesday and his prepared remarks may be released already on Monday. If he reiterates the bank's willingness to do more and opens the door to expanded bond-buying, yields could fall and the dollar could rise. While he is unlikely to commit to new and imminent stimulus, Powell's commitment to do more may provide the next leg higher for GBP/USD. 

GBPUSD H4 02 22 2021 1311

Pound/dollar continues benefiting from upside momentum on the four-hour chart and also trades well above the 50, 100 and 200 Simple Moving Averages. The recent dip pushed the Relative Strength Index away from the 70 level thus further out from overbought conditions.

The fresh multi-year high of 1.4052 is the first resistance level to watch. It is followed by 1.4145, 1.4255 and 1.4370, all date back to 2018.

Support awaits at the daily low of 1.3980, then by 1.3950 and 1.39, which served as stepping stones on the way up.

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