Market Focus

US equities swung back and forth, the three big indices closed the last trading day with little gains. Treasury Secretary Janet Yellen emphasized the need for more supportive fiscal stimulus to help recover the global economy during her first call with the G-7 group. She also suggested expanding the International Monetary Fund’s resources to help developing nations.

US consumer sentiment unexpectedly dropped from 79 to 76.2, refreshing the six-month low. Personal income deteriorated as Americans expect faster inflation in 2021 and 2022. Elevated unemployment figures, restricted social activity, and a slow vaccination process are destabilizing consumer’s confidence in future outlook.

The Fed releases its monetary policy report on Friday, it detailed its 2021 testing scenarios while stating the central banks do not yet plan to remove restrictions that have imposed on banks’ dividend payment amid the coronavirus pandemic. In its latest stress tests, the Fed is examining whether banks could keep lending if unemployment rose more than 4% to nearly 11%, and the stock lost more than half of its value and commercial real estate valuations declined by 40%. The test results usually determine how much of a bank’s excess cash can be returned to investors through stock buybacks and dividends. Results for this new round of tests will come out by June 30.

European Commission President Ursula von der Leyen admitted that the commission underestimated issues that led to an inefficient vaccine manufacturing process, thus dragging the vaccination rollout program. Meanwhile, she expects a further distribution of the vaccines to smooth out, adding that the time in the regulatory process to approve vaccines could still be reduced.

Market Wrap

Main Pairs Movement

The US greenback initially enjoyed a north ride until the disappointing Michigan Consumer Sentiment put a dent in this uptrend, the dollar index is currently trading at 90.44, up a little 0.03%. Meanwhile, the US 10-year treasury yield continues to rise in the backdrop, refreshing highs at 1.207%. The Yen is particularly vulnerable under surging US yield, it has depreciated 1.6% against the US dollar since January. Adding salt to the wound, the BoJ signaled to cut the interest rate further if necessary, weighing down on the safe-haven currency.

Aussie was the second-best performing G-10 currency on Friday, gained 0.1%, just trailing behind the Sterling. The antipodean pair continues to derive support from upward trending commodities, iron ore, and other industrial metals prices. Australian Finance Minister also expressed his optimism earlier this week, which underpins the growth of the Australian dollar.

Strong fundamentals continue to bolster the Pound, which surged 0.31% on Friday. The UK has now vaccinated over 14M people and continues to extend its lead in terms of the percentage of its adult population vaccinated compare to other developed countries. GDP data also proven to be supportive of the current bullish bias, UK’s fourth-quarter GDP (MoM) increased by 1%, beating an anticipated 0.5%. Its December manufacturing production is slightly sluggish, printed 0.3% compares to the previous 1.1% and missed expectation of 0.6%.

Technical Analysis

EURUSD (Daily Chart)

Eurodollar fell more than 40 pips before US market opens, downbeat consumer sentiment brought disruption to the pair’s downward movement, recovered most of its loss of the day. The pair is still sitting comfortably above 1.206 support and is clinging to the short term descending trendline. The yellow upward trendline has previously proven itself to be worthy for defending, now the bulls are in charge of another attack. However, there have been several layers of defense line set up by the bears, the first being the blue descending trendline, next to horizontal resistance of 1.2173, then the January’s high of 1.2333. Adding one more rejection from the descending trendline could largely increase the chance of further retreat. On the south, near support sits around 1.206, followed by 1.193.

Resistance: 1.2173, 1.2333

Support: 1.206, 1.193

GBPUSD (Weekly Chart)

The cable is well placed in an upward trending tunnel since last April and has managed to stand above the 1.38 hurdle dated back to March 2018. The surge from the Sterling has been remarkable, gained nearly 15% against the US greenback since last May. We maintain our bullish bias on this pair given its strong fundamentals, and most of the previous Brexit negativity has been removed from the market. However, it seems like Cable is running ahead of itself as an RSI of 67.4 indicates the bulls are not far from overheating. A pullback toward 1.338 could be healthy for a longer-term bullish run.

Resistance: 1.416, 1.4625

Support: 1.38, 1.338, 1.2769

XAUUSD (Daily Chart)

Gold was previously stuck within the previous support band between $1838 and $1823, and it failed to stand on top of the previous neckline, which speculators usually perceive as a strong sell signal. Now that price slips below $1823, it opens the door for sellers to explore further downside space. Bearish momentum could accelerate from here since not much technical supports or resistance were established between $1823 and $1765. It seems like MACD on the daily chart changes its tone from a bullish reversal to a continuation of a bearish trend.

Resistance: 1823, 1872, 1930

Support: 1765, 1691