Market Focus

US equity market suffered despite easing bond yields. The three big indexes were on the retreat. The S&P 500 index slumped 0.64%, with industrials and materials stocks led the decline.

Here are Bloomberg’s key takeaways from Janet Yellen and Jerome Powell House CARES act testimony:

• The Fed expects a temporary increase in fiscal stimulus in the coming months. Powell repeated that the Fed will communicate well in advance when it gets closer to bond-buying tapering.
• Powell said inflation to move up over this year, but it won’t get out of hand.
• Yellen characterized asset-price valuations as elevated by historical metrics. Powell added that while “some asset prices are a bit high,” banks are highly capitalized. 
• Powell doesn’t favor complete privacy about ownership of and transactions in a digital dollar. A system that relies on private governance or anonymous owners “would not be viable”.

Market Wrap

Main Pairs Movement

The dollar was gaining traction on Tuesday, the dollar index ramped up 0.64%. The rally may be motivated by external forces, rather than the US greenback itself. New Zealand government unexpectedly announced its move to fight rising house prices with a set of measures. The act will heavily hamper down the rentier class as the newly rolled out tax code makes housing speculation less profitable. To be specific, capital gains on property investment will be taxed for any property held less than 10 years, compared to the previous 5 years. The bigger implication is perhaps pandemic resilient or recovered countries like New Zealand are already getting their hands on reversing the consequence of a too loosen monetary policy. This synchronized expectation in turn dragged down currency crosses like the Aussie and Cable, where similar steps are followed.

The eurodollar plummeted 0.2% as investors are still digesting the Turkey headline. Moreover, lockdown extension from Germany and Netherlands further weighed down on the shared currency. There is little sign of backdown from infection figures in Germany, Chancellor Angel Merkel noted “case numbers are rising exponentially thanks to the British variant of the virus, new British variant of coronavirus means we are effectively in a new pandemic. [lockdowns] will be extended until Easter.”

Renewed lockdown in Europe undermined oil price on Tuesday, the WTI crude and Brent crude futures plunged 6.17% and 6.59% respectively. Investors are worried that the sluggish EU vaccination campaign will fall further behind amid the resurgence of infections within the Euro Zone, thus decelerate the recovery in oil demand.

Technical Analysis

EURUSD (Daily Chart)

Eurodollar looks to close the day with a solid bearish engulfing. Price was very close to climbing back above 1.1954 during yesterday’s session, but today’s recovering dollar strength killed bulls’ hope. More importantly, the double-top pattern is manifesting itself as price broke through the neckline of 1.19. As we noted in the previous analysis, this pair will exit the current consolidation phase, and the bears will reclaim the driver seat. It is unsurprising to see a retaining selling bias given the breakout from an ascending trend. On the downside, the nearest contestant support lies around 1.1778, following by a long-standing 1.163. We are also seeing a bear revival from the MACD.

Resistance: 1.19, 1.195, 1.2215

Support: 1.1778, 1.163

NZDUSD (Daily Chart)

The long-awaited breakout on the Kiwi finally happened, after stuck inside a tight range between 0.7117 and 0.725. Price relentlessly plunged 2.14% on the news that the New Zealand government will fight rising house prices with a new set of policies. It is falling onto 50% Fibonacci of 0.7, which is also significant psychological support. We witnessed a strong bounce last time when this handle was contested, thus it is reasonable to induce a similar action this time around. However, if the price fails to pull away from 0.7, then we suspect the starved bear will take the price down to 0.69.

Resistance: 0.7117, 0.725, 0.7465

Support: 0.7, 0.69, 0.6768

XAUUSD (Daily Chart)

Gold is still clinging to the descending trendline, along with the mid-line of Bollinger Band. Price is backed to a corner, and awaits signals from the Treasury market. That being said, we remain a bullish stance on the precious metal since stimulus checks are in the rearview mirror, focus has returned to Fed’s dovish view and upcoming Treasury auction, which should eke out Gold. We are seeing bounce-offs from the frequently visited $1727 soft support, any decisive upward drift could encourage bulls to pile in. At this point, investors should be prudent to wait for a clear breakout from either side.

Resistance: 1765, 1839, 1872

Support: 1727, 1691, 1680