Equities saw relative calmness in the first half of the week as the volatility in the bond market reduced significantly at the end of last, but global indices are struggling again this morning as investors’ concerns grown again.

Bond yields had been rising steadily since the beginning of the year, with high-growth technology companies being hardest hit as their valuations were underpinned by low rates, making them highly sensitive to interest rate expectations. 

Part of this move higher has to do with investors increasing bets that the Federal Reserve will be pushed into tightening its monetary policy as a response to rapidly increasing inflation, causing an increase in the cost of doing business and making stocks less attractive.

In Europe, equities are holding up slightly better as the market is made up predominantly of cyclical stocks that will eventually benefit from rising inflation from an increase in economic activity. The FTSE 100 continues to revert to its mean within its Bollinger trading range, holding steady around the 6,620 area for the last few trading sessions.

UK100 D1 03 04 2021 1303

Current support remains around the 61.8% Fibonacci retracement (6,489) where the lower bound of the Bollinger range is now converging, showing that momentum is shifting slightly higher. The FTSE is likely to continue facing a lot of noise with a tendency to follow US equities, but I think it can continue to see a trend higher as long as it remains above the 6,480 area.

A break higher past the upper limit of the Bollinger bands seems unlikely given the current set up, but a slow-paced uptrend could continue to unfold in the next few days, at which point the 6,800 mark becomes the next target, which has been an area of strong resistance since the FTSE 100 below it back at the beginning of January.

 

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UK Chancellor of the Exchequer Rishi Sunak will present his Budget to the Westminster Parliament later Wednesday but with many of the measures pre-announced it is unlikely to roil either GBP or the UK stock market.

Sunak is expected to extend the UK’s jobs rescue plan – known as the furlough scheme – to September but also to warn that the public finances will need to be fixed once a recovery is in sight. This will mean further issues of Government debt, with a poll of dealers by the Reuters news agency showing that the UK is expected to sell nearly £250 billion of Government bonds in the coming 2021/22 financial year – the second-highest total on record.

GBPUSD D1 03 03 2021 1257

In the same poll, the UK budget watchdog, the Office for Budget Responsibility, is expected to forecast borrowing of £180 billion in the coming year, down from the £394 billion it predicted would be borrowed for 2020/21.

Traders will need to keep an eye on both the borrowing data and the economic forecasts but unless these are far away from expectations GBP/USD will likely continue to trade around the 1.40 mark, where there is currently round-number resistance.

Spot Platinum 20210211 10.59

This is as the rare metal is fast approaching the 2015 peak at 1290.30. Negative RSI divergence shows that upside momentum is fading, which can at times precede a turn lower. Should that occur, the 20-day and 50-day Simple Moving Averages (SMAs) could act as support and reinstate the focus to the upside.

 

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EURUSD D1 02 18 2021 1241

The US Dollar enjoyed a bout of strength to begin the year as EUR/USD endured a pullback toward support. While the brief reversal in price was hard to deny, it can be argued there were few changes in the underlying fundamental landscape to drive such a move. To be sure, a decline in risk appetite and damaged sentiment likely played a role as investors piled into the safety of the Greenback, but with sentiment repaired USD could face renewed pressure.
Further still, the technical EUR/USD landscape looks encouraging. While recent weakness may have spooked some bulls, it might be viewed as mere consolidation before a continuation higher by others. To that end, the series of higher-highs and higher-lows dating back to March remains intact and EUR/USD trades above a plethora of longer-term moving averages. Much of the same can be seen on the daily chart. Trading narrowly beneath the 50-day moving average.

NZD/USD appears to be adhering to swings in risk appetite as major central banks rely on their emergency tools to achieve their policy targets, and the US Dollar may continue to reflect an inverse relationship with investor confidence as the Federal Reserve retains the current course for monetary policy and pledges to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.”

The Reserve Bank of New Zealand (RBNZ) seems to be following a similar path after unveiling the Funding for Lending Programme (FLP) at its last meeting for 2020, and the central bank may continue to endorse a dovish forward guidance at its next interest rate decision on February 24 as Governor Adrian Orr and Co. “remain prepared to provide additional support if necessary.” 

NZDUSD D1 02 08 2021 2208


In turn, it remains to be seen if the pullback from the January high (0.7315) will turn out to be an exhaustion in the broader trend rather than a change in market behavior as key market themes remain in place, and the tilt in retail sentiment also looks poised to persist as traders have been net-short the pair since October.
Keep in mind, NZD/USD cleared the June 2018 high (0.7060) in December as it climbed to a fresh yearly highs throughout the month, with the Relative Strength Index (RSI) pushing into overbought territory during the same period as the oscillator established an upward trend in the second half of 2020.
NZD/USD took out the 2020 high (0.7241) during the first week of January to come up against the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), with the bullish price action pushing the RSI into overbought territory.
However, the move above 70 in the RSI was short lived as the indicator failed to retain the upward trend carried over from 2020, with the oscillator indicating a textbook sell signal during the first week of January as it quickly fell back from overbought territory.
With that said, NZD/USD may make further attempts to break out of the descending channel formation from earlier this year as the US Dollar still reflects an inverse relationship with investor confidence, and the rebound off of the 50-Day SMA (0.7140) may gather pace as the exchange rate clears the opening range for February. 

 

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