Indices Weekly Market Outlook

Last week was quite a choppy week in US indices with huge movements to the up and downside within the Tech and Industrial sectors. We saw the Dow Jones (US30) create new all time highs as well as NASDAQ making a recovery after having quite the selloff in the week prior. We saw VIX, also known as the fear gauge, make a quick decline over last week showing us a potential recovery in risk trends with bond yield volatility eventually slowing down. Not to mention Congress managing to cement President Biden’s $1.9 trillion stimulus package which likely added to investor optimism. 

VIX DAILY TIMEFRAME

Fundamentally this week, on Tuesday we have both Retail Sales coming out which will bring some volume to the markets. Wednesday is a big day with Crude Oil inventories coming out which could continue to influence the Industrial Index as it has in the past few weeks with Oil stocks going on a bull run. We also have the FED Interest Rate Decision as well as a press conference by Fed Chair Jerome Powell which will be closely eyed by investors, who are looking for clues about the Fed tapering plan and the central bank’s view on rising longer-term yields. Jobless claims on Friday will most likely add or take away from investor optimism depending on how the figure comes out.

FUNDAMENTALS THIS WEEK

We can see NAS found dynamic support from the long term trendline originating from swing lows from June and November 2021. Technically, NAS is at an inflection point with a break or bounce situation. It could still be susceptible to further selling off with it not showing a complete pullback just yet and with bond yields not entirely stabilised, tech stocks are still first in line for profit taking among institutions. Price is currently hovering around the 50-Day Exponential Moving Average, potential Fibonacci retracement zones as well as a previous level of resistance coming from January 2021. If price manages to break and clear these technical levels, we will most likely see new highs created in the weeks to come with the help of stimulus cheques being sent out as early as this weekend potentially, some already receiving their $1400 boost.

NAS DAILY TIMEFRAME

Looking at the Dow Jones on the 4 Hour timeframe, we can see that price went on a rocket ship amidst the news of Congress managing to pass President Biden’s stimulus package resulting in a boost in investor confidence. Technically, price has not had any form of a real pullback and with it being as bullish as it is at the time of writing, profit taking is bound to take place eventually. Once this happens, the first levels of potential support where price could stall is around the $32 600 and $32 400 regions respectively. If no support is found, the psychological level of $32 000 will become the main target.

US30 DAILY TIMEFRAME

With all these fundamental factors to take into account, be mindful of risk management as we anticipate another volatile week in the stock market. To stay up to date and receive more market outlooks like the one above, subscribe to our blog for updates directly to your mail. Have a great trading week ahead!

Oil Super Cycle In Motion?

After witnessing the black swan event of 2020, seeing oil prices fall below $0.00, we have seen a massive rebound for the liquid commodity. Last year, we saw a massive shock to supply & demand as we had too much oil and too little demand with global lockdowns being enforced. In 2021, we may see another supply & demand shock, but what will be the catalysts and why will we see a complete opposite from 2020?

With optimism around the economy reopening mounting, we are anticipating massive demand to come back to the oil markets. The lack of demand and overflow of supply was the downfall of oil last year. This year, we see the polar opposite as we see demand pick up and supply gets tapered.

Last week the OPEC had announced supply cuts in April at a time when the markets are signalling further supply is needed as prices climb. This lack of supply, with pent up demand is pushing pries higher in the short term. Although we see a race for a green economy by 2030/2035, oil is still essential and will not fall away. This factor is something to be mindful of as the global energy infrastructure will change and demand for oil will drop in the longer term.

DXY DAILY TIMEFRAME

Analysing the DXY, we are seeing resistance form around levels seen back in September. There is still further room for upside as we see a resurgence in the Dollar. This can potentially hold commodity prices lower, should we see upside in the DXY. Commodity prices also prefer lower rates so the inflation outlook is also extremely important to watch.

The upcoming stimulus will have a positive effect on the commodity market as we see asset prices inflate and rates are suppressed. The bill has been passed in Senate and we now await Biden to officially sign the bill.

USDCAD DAILY & USOIL 4HR

Looking at USDCAD to the left, we can see price has been trending to the downside long term as oil rallies higher. This is because oil makes up a large % of Canada’s GDP. In the more recent weeks, we have seen the Dollar stage a rebound, however price has begun to consolidate throwing wicks on either end of the daily range, expressing indecision.

In this time, we have seen Oil continue it’s ascent higher. There is a potential a high has been formed, although there is further upside on the DXY. Any push higher, the psychological level of 1.28000 will be the next key level in focus. With wicks being thrown to the upside on most occasions, we may be preparing for a downside leg on USDCAD as Oil holds support to potentially go higher. Should oil prices drop, all eyes will be on the $60-$62 region for further buying pressure.

Today, we have the release of US Crude Oil Inventories. This will have a direct impact on the charts displayed above. The previous number came in with excessive supply increases around 21.6mln barrels added. The forecasts for today’s number is 3.0mln, any figure falling far out of line from these expectations will move the market.

Aside from the fundamental and technical picture, there were also attacks on the worlds largest crude oil terminal situated in Saudi Arabia. This Ras Tanura Refinery is capable of exporting 6.5mln barrels a day – 7% of oil’s demand. This attack is the most serious offence seen since September 2019. With tension mounting, it will be important to be mindful of any developments in this story.

We also recently saw a vessel carrying 130 tonnes of oil running aground in Mauritius. This is not only an environmental disaster, but a shock to supply/demand. Divers stated there appears to be no major leak in the hull, but this delay in supply delivery will have an impact on business.

JP Morgan has raised expectations on oil pricing, stating we should see global consumption back at pre-2019 levels by the first half of 2022. With all these factors to consider, volatility is expected in the markets. US crude oil inventories will be an important figure to keep your eyes on at 3:30pm. As always, exercise risk management and to stay up to date with what is happening in the markets, subscribe to our blog for instant updates to your email. Have a great trading week further !

GBP/USD – UPSIDE TARGETS FOR THE FALLING POUND

Having a look at GU, its been an interesting week. Since the last article that was on GBPUSD and it reaching into resistance, the pair has fallen an incredible 400+ pips. Today we going to be looking at why that happened, and where we heading next on the Pound. 

Analyzing GBP/USD fundamentally, we believe that there were 2 major fundamental catalysts that brought the Pound 400+ pips lower. 

Starting with the Annual Budget we had the UK Chancellor Sunak state that we will see corporation tax increases in 2023, 1.6 billion will be spent on vaccines, a new policy regarding environmental sustainability will be brought forward as well as a freeze in income tax thresholds until April 2026. 

These factors, although they appear negative in the short-term, have long-term positive effects. The pro-investing outlook shows that they are investing in the future. This is a much more effective process that stimulus checks in the U.S as they aren’t printing more Pounds which would result in the Pound being devalued. 

November forecasts for the 2025 budget deficits was at 3.9% of the GDP, however, we have now seen it change to 2.8%. This shows that the BOE will be decreasing their debt and this is seen as a positive for the currency. 

Furthermore, we have now seen a huge bid for the Dollar as we see the DXY crossing 91.50, making its way towards the 93.00 handle.

GBPUSD DAILY

Taking a look at GBP/USD technically, we are looking for a push into the level of 1.37500 – 1.36000. This would be a favourable area for us to look to get into long positions as its retesting the weekly consolidation block, inline with our preferred Fibonacci level ( 78.6% ) and would line up beautifully with a touch of our 50 Day Moving Average. 

Targets for this long position, should we see it play out, would be our weekly order block mentioned in the previous article in and around 1.44000. 

We may see a slight over extension on GBP/USD with NFP numbers beating forecasts, but our bias remains long. 

Don’t forget to subscribe to our blogs for weekly updates and more market insight.

Have a great weekend! 

Tech Stocks Sell Off

After weeks and weeks of bullish momentum, we have finally seen fresh session lows printed on the NASDAQ with an 11% drop from the All Time Highs at the time of writing. Is this the stock market reset many have anticipated because of rising yields or is this simply the time to buy the dip with President Biden’s stimulus package weeks away from being implemented?

NAS DAILY TIMEFRAME

As we can see above, we’ve seen about a 7% decline in the NASDAQ since creating the right shoulder formation sending price into a level of potential support created by the highs we saw in September 2020. 

This sell off also coincided with a rise in the 10 Year Treasury Yields after Fed Chairman Jerome Powell had no success in calming fears about rising volatility in the bond market in a speech at the Wall Street Journal Summit last night. As we can see below, we’ve seen the 10 Year Yield rise into 1.547% at the time of writing. It will be interesting to see if the rise in bond yields is enough of a catalyst to continue sending tech stocks lower.

10YR 4HR TIMEFRAME

With the NASDAQ currently sitting at an inflection zone, it will be interesting to see how US Unemployment Rate, NFP and the Federal Budget will affect the stock market and yields going forward. Looking below, we can see if our long term trendline cannot manage to hold as dynamic support going forward, we still have an immediate potential support zone around the $12 000 region as well as the 200 day Exponential Moving Average just below that.

NAS DAILY TIMEFRAME

Always remember to exercise risk and money management when looking to execute positions amidst all of these fundamentals coming up. We hope everyone had a great trading week. For more articles like the one above, subscribe to our blog for updates delivered directly to your email so you never miss the market moves.

USD Bulls In Full Force

After nearly a year of downside pressure on the dollar, we have finally begun to see relief in the world reserve currency. This comes as we see a massive rise in yields & Jerome Powell admitting we may have further inflation on the horizon, although he states the Fed will not react to rising rates.

As of 5 February, price has broken structure, creating higher highs and higher lows. After surpassing the 106.000 key level, we have seen massive buying momentum on the dollar as the DXY soars past 91.50 handle.

USDJPY & DXY DAILY

As we can see above, the DXY has reached key support last week Friday, bottoming out around 89.750. This higher low formation on the DXY and buyers stepping in can be translated to USDJPY as we had the daily break & retest of 106.000 followed by a bullish run into 108.320 at the time of writing. The psychological key level of 108.000 is a crucial level to observe closures. Should we close above, we will be looking for price to stabilise and continue towards 110.000, closures below may allow a retracement before a continuation.

4HR USDJPY & DAILY DXY

Applying a fib, we have a 78.6 retracement on the DXY as we head towards our first target inline with prior support which may react as resistance. The next upside target on the DXY is the 93.00 handle.

March 2 Covid Cases

Looking at covid cases, we have seen a decline heading into 2021, providing optimism for the dollar as we see the reopening of the economy become a main theme. Powell reiterates we are a long way away from FED goals, however we seeing massive pricing in towards a higher GDP growth number this year. Many analysts believe we can see 7% growth this year. Vaccinations has not been as successful as other G7 countries such as the UK, however we have optimism surrounding further support for vaccination funding & roll outs.

All eyes are on the Non-Farm Payroll data releasing today. Forecasts are almost 4x the prior months data however, we anticipate a softer number which could reflect a longer recovery period. Unemployment is at 6.3% with forecasts staying the same. Powell stated 4% unemployment would be a good number to have and would show significant progress, however this would still be far away from max employment.

With further stimulus on the cards towards the end of the month, we may see an inflation in the dollar price before we see the market flooded with bonds & dollar printing, dragging the US Dollar lower.

With major fundamentals on the horizon, it is crucial to exercise risk management & we hope you had a great trading week! For more articles like the one above, subscribe to our blog for updates delivered directly to your email so you never miss the market moves.

The Next Boom & Crash ?

The stock market has endured a lot of pain the past week or two, tech stocks in particular, but what is the catalyst for this severe hit to the stock market? 

NAS100

Bond Yields 

As of August 2020, we have seen 10YR bond yields rebound off of 0.50% and begin climbing towards prior support. Starting off the year on a rather volatile note, we saw yields breach the 1.00% level after consolidating prior. This rapid move upwards triggered fear in the market. 

It was stated that bond auctions did awfully yesterday, with “anaemic demand” essentially seeing little to no buyers. Bond prices are dropping, in turn pushing the yields up, incentivising buyers to step in. 

Bond yields are now at 1.48% at the time of writing this article, after printing highs around 1.56%. Bond yields at the level of 1.50% matches the S&P500 dividend yield, thus creating stock exposure less attractive. 

US30 & 10YR Yields

There are 2 levels for traders to stay vigilant of: 

US10YR – 1.50% 

US5YR   – 0.75% 

Should we see an advancement above these levels, stocks will likely sell off. At the peak yesterday, we saw yields well above these levels, allowing stocks to continue their descent. 

Bond buyers are sitting on their hands in anticipation of further discounting, producing higher yields. 

Stimulus 

Bond buyers are awaiting stimulus as the government is set to sell even more bonds onto the market. This is likely to come in at even lower prices, creating As supply goes up, the price will come down. This will push rates higher. 30% of individuals receiving stimulus checks stated they will be using a portion to buy stocks, adding more fuel to the fire as we await the $1.9T stimulus package to be passed.

Congress is meeting today to discuss stimulus & the budget reconciliation vote. The $15 minimum wage is an issue as we see the filibuster continue. It is argued that should wages be raised, we will see higher cost of social security benefits & unemployment costs could also increase dramatically. Elizabeth MacDonough, the Senate Parliamentarian ruled that the minimum wage cannot be included in the budget reconciliation package. 

If in the House of Representatives, the Democrats lose 6 votes, the stimulus won’t be passed today or tomorrow. We will need to see if Senate will overrule or amend the bill. This could cause delays should we amend the bill. 

There is a possibility to compromise the minimum wage at a lower level. This would likely come as a separate bill. There are rumours surrounding $10-11 as a compromise to the $15 minimum wage. It is likely we see the minimum wage thrown out for the upcoming stimulus package. 

Volatility Index

Recently we have seen spikes in volatility and increased fear in the market. Could we see a repeat of 2020?

VIX

Inflation & Rate Hikes 

Many people are anticipating hyperinflation as the FED continues quantitative easing & stimulating the economy. This will in turn render the bond yields useless. There is an increasing consensus that Jerome Powell will also hike rates earlier than the anticipated timeframe around 2023. Should we see rate hikes in the coming year, this will increase bond yields further. 

Real interest rates have pushed off the lows of -1.0% as well. This could be a signal for yields to continue higher. What is a real interest rate ? The real interest rate has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower. 

Across the ocean we also see the ECB signaling additional support can be given, should yields hurt growth. ECB’s Schnabel stated they still have room for further interest rate cuts. With so much going on in the market, we look to the bond market as a clue to what could potentially happen to the stock market.

Additional dates to be mindful of is the next FED meeting around the 4th of March as well as the end of tax return filings on the 15th of April. These could be market moving events. For more market updates like the one above, subscribe to receive all updates via email in real time. As always, exercise risk management & we wish you a well rested weekend & successful trading week ahead!

GBP/USD – FINALLY SOME RESISTANCE?

Today I’m going to be speaking about the Pound and the huge influx of bullish momentum we’ve seen in the past weeks. I’m also going to dive a bit deeper into why we’ve seen such a strong bullish push across the board with the Pound. 

The first theme I’ll be covering is Brexit. The deal that contained the new rules as to how the EU and the UK will work and trade together was implemented on 1 January 2021. It must be said that Brexit is not completely over. There are still some important decisions to be made with regards to data sharing, financial services and the fishing industry. Not all of the EU’s rules and regulations have been applied yet, with a grace period running up until the 1st of April, with the possibility of an extension till 2023.

With that being said, it is partially because of Brexit that we have seen this bullish push in the Pound. Initially, Brexit caused a outperformance in UK assets, as the Pound was taking a beating due to the uncertainty Brexit brought to the Pound. However, this has now changed. 

With an agreement between the UK and EU being reached, majority of the uncertainty surrounding the Pound was cleared up. This resulting in huge optimism being seen in the price action and for the future of the Pound. 

Moving onto the main theme behind the Pound strength; vaccine roll-outs. A foreign exchange strategist at Goldman Sachs said that the UK is currently benefiting from a “first mover advantage” and I couldn’t agree more. The UK has been by far the most successful and efficient when it comes to vaccination roll outs, and because of the fear Covid19 and what it has instilled across the world, the UK being so far ahead and so efficient with the vaccinations, It can be seen as the catalyst for the buying pressure across the Pound.

The Wall Street Investment bank said earlier this week that the vaccine roll-out and the decrease in infections in the UK is putting them in a favourable position for a near–term rebound. 

On the 23rd of February, the UK also recorded its lowest daily infections for the year and 1 in 3 adults had received their first vaccinations.

Vaccinations Data

As seen above, the UK has 27.5% of its population vaccinated, far more than any other leading economy with the US sitting at 19.4% of their population vaccinated. 

Daily Hospital Admissions

Analysing the above chart we can also see how hospitalisations have decreased rapidly from the 1st of January as vaccination roll-out has been a massive success. 

Pound Demand Increasing

Above, we can see demand for the Pound has increased dramatically since the beginning of the year. This buying pressure is seen from large institutions and being front run by Real money. Real money include pension funds, insurance funds, real estate investment trusts, asset managers and other finance houses. This has been the strongest demand for the Pound seen in a decade. With these positions over extending, we can anticipate price to recede before continuations.

Correlating the recent fundamental themes to the GBP/USD chart, price is currently on a bull run, but reaching into some interesting areas, a possible pull-back on the cards? 

MONTHLY TIMEFRAME

Looking at the Monthly timeframe on GBP/USD we can see price is approaching our weekly key level of 1.42500. This is quite an important area to start looking for reversals, however, my favoured outlook is that the Pound continues to push higher into the order block I’ve highlighted in red, in line with the highs we saw in April 2018 in and around the area of 1.44000-1.45000. 

WEEKLY TIMEFRAME

Dropping down to a weekly timeframe, I’ve highlighted where we reached a Brexit agreement for the first time as well as when the new rules regarding Brexit were implemented and the effect it had on the market thereafter.

We can see the initial optimism of reaching an agreement drove price nicely, with a weekly closure above the level of 1.35000. The rules were implemented on the 1st of January 2021 and we can see it lead to a pull-back into the important level of 1.35000 before a huge bullish continuation. 

4 HOUR TIMEFRAME

Looking at the 4 hour timeframe, this is where I am starting to see room for a possible pullback. As it stands, GBP/USD has not yet tapped the level of 1.42500 just yet, but has started a slight bearish decline. We have a ascending trendline that I’m looking to be met for the 3rd bounce around the area of 1.40000 – 1.39750. This lines up beautifully with our 50 day EMA and our preferred Fibonacci levels of 61.8-78.6%. With this being said, there is a minor level of support around 1.41000 that would need to be cleared before we see the level of 1.40000. All previously mentioned confluences lead me to believe the Pound has the potential to pull back before more bullish continuations. The fact that we should start seeing restrictions being eased in the UK as early as June 2021 also acts as an extra confluence for upside in the Pound.

24 February Fundamental Event

Fundamentally for the week ahead there isn’t much to look out for when it comes to the Pound besides the monetary policy report hearing that is coming out later today at 4:30pm. The grace extension till 2023 is also being discussed this evening.

As always, I encourage all traders to exercise risk management when entering positions and I hope you all have a successful week in the markets!

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EUR/NZD – Downward Targets Achieved

Since the previous blog post on this currency pair, we’ve seen both downward targets of 1.70350 and 1.69900 achieved. Below we’ll take a look at how price played out from the previous blogs analysis.

HOURLY TIME FRAME

Looking at the 1 hour time frame above from the previous blog post, we can see that I was anticipating a move into the 61.8 as well as the descending trend line as the first point to short this pair from. When looking to execute a trade, always be on the lookout for candlestick confirmation in and around the regions you are looking to execute from, as I will demonstrate below on an updated chart.

HOURLY TIME FRAME

Looking at the how price played out on the updated hourly time frame, we can see that price started reversing just short of the 61.8 as well as the descending trend line. What added confluence to this short position was the double top that was formed and once price broke out of the area of consolidation between 1.71800 and 1.71450, price went on to create lower lows and lower highs with both downward targets being met. This short position offered a 1:6 risk to reward, falling 230 pips from the area shown.

4 HOUR TIME FRAME

On the 4 hour chart above, with our lowest downward target highlighted to create a zone we can see how it has acted as support where price bounced off of and is now approaching the 78.6 fib level which lines up with previous support/resistance area. If this zone can hold as resistance expect further downside movement but if we have a break above and retest of the zone drawn, expect this pair to move higher.

Today the Eurozone released their revised GDP for Q3 which turned positive, posting a 12.5% growth but looking at the GDP on the year over year basis, their GDP is down 4.3%. This Thursday, the ECB will be discussing how their Recovery Fund will be implemented as well as the possibility of further quantitative easing in order to boost their economic recovery.

Remember to journal your analysis and trade setups in order to track your progress and to make the necessary adjustments to your trading plan. Subscribe to receive updates sent directly to your e-mail.

USD/CAD – Technical Analysis

The US dollar has come under a lot of pressure in recent weeks and with oil trading above $45 for the first time since the oil market crashed in the beginning of the year, let us look at potential short positions on this pair.

DAILY TIME FRAME

Looking on the daily time frame, we can see that yesterdays candle closure was extremely bearish, engulfing the wicks that were created whilst it was consolidating as well as closing below the ascending trend line and with the current candle pushing higher, we could find opportunities to short this pair by looking at the lower time frames. A daily closure below the ascending trend line would signal further downside on this pair.

4 HOUR TIME FRAME

On the 4 hour chart above, we can see how price found support on the ascending trend line in line with previous support as well, shown by the highlighted region. The horizontal ray plotted at 1.30450 highlights a key support/resistance level which recently acted as a strong support level, could offer resistance. Looking at the fib tool drawn, we can see that the horizontal ray almost lines up perfectly with the 61.8 retracement level. If there is no candlestick confirmation around the 61.8, one would wait to see if the 78.6 can hold as resistance which lines up with the set of double bodies illustrated by the arrow tool.

HOURLY TIME FRAME

On the hourly chart, price is making lower highs and lower lows and since bottoming out at 1.29900, we have been making discreet higher highs and higher lows. Looking at the highlighted region drawn from the double bodies directly to the left of current price, we can see how previous support has now acted as resistance. If price can break above this level and continue into our preferred fib levels, it would offer the opportunity to go short on this pair.

Remember to always wait for candlestick confirmation around the zones you are looking to execute from in order to optimize risk management. Subscribe to our blog to receive updates sent directly to your e-mail.

EUR/NZD – Updated Analysis

The president of the ECB, Christine Lagarde, stated at yesterday’s press conference that the economic activity in Europe has lost significant momentum in the fourth quarter with the surge in coronavirus cases adding to the already heightened level of uncertainty.

DAILY TIME FRAME

Beginning on the daily time frame, paying close attention to the latest candle closure, we can notice that we had a bearish engulfing with price finding support on the daily level that was illustrated in the previous post. Now that price found support, we can see the pull back that was expected. Price does look to be printing a double bottom, but one would have to wait for the daily candle closure for that to be confirmed. However, with very little changing from a fundamental perspective for the euro I still expect further downside on this pair.

4 HOUR TIME FRAME

Dropping down to the 4-hour time frame, one can see that price has been making lower highs and lower lows. We can see more clearly how well this pair reacted to the daily level that was plotted. We are now seeing the expected retracement with price moving towards the 61.8 fib level where we could potentially find resistance around the 3rd touch of the descending trend line. If there is no candlestick confirmation around the 61.8, we would look for a rejection off the 78.6 which would also line up with a retest of the ascending trend line. Downward targets are 1.70350 and then 1.69900.

Remember to always wait for candlestick confirmation around the areas you are looking to execute from in order add confluence to your trading. Subscribe to our blog to receive updates sent directly to your e-mail.