Market Focus

US equity market was mixed as investors weighed the risk of inflation with economic growth accelerating. The Dow Jones Industrial Index is down on a second consecutive day, dropped 0.77% on Friday. Meanwhile, the S&P 500 index pared its weekly losses, with communication stocks led the gain and financial and real estate shares fell behind. US 10-year treasury yield rose 0.55%.

The Federal Reserve will relax its Supplementary Leverage Ratio on banks to pre-pandemic level. In response to market panic back last March, the Fed had let banks exclude Treasuries and deposits in SLR calculation. However, this relief will lapse March 31 as planned, the Fed said in a Friday statement.

The first high-level talks between China and the US since President Biden took office quickly descended into recrimination. The largest two economies criticized each other over human rights, trade, and international alliances. In response to Biden’s toughness, China accused “The US wasn’t qualified to speak to China from a position of strength.” Despite the wide expectation of divergence in the first meeting, investors are growing concerns over the development in these fiery talks.

Here are Bloomberg’s key takeaways from BoJ monetary policy:

• Will be flexible in keeping up its long quest to revive inflation that includes a wider-than-previously-thought movement range for bond yields.
• The band around its 10-year yield target was around 0.25% on either side of zero.
• Unveiled bank lending incentives and a plan to revise its three-tier reserve system if it lowered its target rates.
• Economists described the move as a balancing act that allows the BoJ greater scope to buy few assets but also shore up the effectiveness and sustainability of its measures.

Market Wrap

Main Pairs Movement

Euro was on the back foot against the US greenback as US bond yield advanced to 1.74%. As the mutated coronavirus has taken hold in Italy, Prime Minister Mario Draghi pushed most parts of the country into another lockdown, set to expire in early April. The latest restriction will significantly deepen the current economic contraction. Thus, the Euro bears are here to stay.

Cable was the worst performer among its G-7 peers, dipped 0.4% on Friday. The Sterling was weighed down by the slowdown of its vaccination campaign. Around 38% of the UK’s population received the first dose of vaccine, but only 2.6% administered the second dose. Investors are concerned that slowing supply may derail exit from the current lockdown.

Aussie slipped 0.14% amid downbeat retail sales. Australian retail sales declined by 1.1% in February, missed an expectation of 0.4% growth. However, the commodity-linked is generally resilient to the rebounding dollar greenback, dipped only 0.23% weekly.

Gold continued to recover albeit higher bond yields, rallied 0.31%. We are witnessing a deceleration in sell-offs among the largest Gold ETFs. SPDR Gold ETF holding was essentially unchanged for the week of March 15th, whereas iShares Gold Trust holding only decreased 0.02 million ounces in the past two weeks. Perhaps, we could see some dip-buying as the non-yield metal is oversought recently.

Technical Analysis

EURUSD (Daily & Monthly Chart)

Eurodollar is undergoing a double-top trading pattern on the daily chart. To complete this pattern, the bears need a solid breakthrough from the neckline of 1.19. On the downside, the price would fall onto the nearest support of 1.1778, last seen last November. Conversely, resurgence to 1.195 resistance could offer bulls the chance to pile in and create momentum to reclaim 1.2. As we mentioned in the previous analysis, recent selling bias is a bigger retracement on the monthly chart, thus it is completely conceivable for the first scenario to play out itself. MACD slightly favors a bearish trend.

Resistance: 1.1954, 1.209, 1.221

Support: 1.1778, 1.163

AUDNZD (Daily Chart)

AUDNZD is trapped within an ascending triangle, and the price is clinging to the ceiling around 1.083. An ascending triangle usually points to a bullish trend. Yesterday’s solid long body candlestick has indicated demand for the Aussie is overwhelming compare to Kiwi. This is the bulls’ strongest contest to 1.083 resistance, and we expect sellers to surrender this level. Further in the north, the antipodean pair could eye for 1.093, possibly advance toward the 1.1 hurdles. MACD on the daily chart also lends support to the bulls.

Resistance: 1.083, 1.093, 1.1

Support: 1.064, 1.057

XAUUSD (Daily Chart)

Gold is still constrained by a descending trendline, which is in line with our forecast. However, the price seems to be sticky on the trendline, implying a diminishing pressure from this dynamic resistance. That being said, the market may take a breather from recent extreme bearishness on precious metal thanks to Federal Reverse’s dovish tone on Wednesday, thus reviving the risk-off tone. More observations are needed amid tentative market movement. If the price managed to stand above the downward trendline, then it would look to contest a 50% Fibonacci of $1765. Conversely, the bearish bias would persist and accelerate if bulls fail to retake the driver seat.

Resistance: 1765, 1839

Support: 1691, 1670, 1600