The analysts at Goldman Sachs expect the Biden administration to release yet another massive tsunami of cash into the US economy. At the same time, the democrats are looking to reverse some of Trump’s corporate tax cuts and take the corporate income tax on domestic earnings from 21% to 28%. Trump cut the corporate tax rate from 35% to 21%.   By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

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This week started with a bang for Turkish Lira traders. USDTRY gapped up some 16.4% before trading lower. The massive gap was caused by the removal of a central bank governor that favoured stricter monetary policy and was replaced with a governor critical of high interest rates. The appointment was made by President Erdogan who is known for projects involving vast infrastructure spending.

On Friday we pointed out how Nikkei was weak and likely to move lower. The index reached our support ( 29150 – 29300) on Friday but has remained weak as the lower high in the weekly chart suggests even lower prices before a new sustainable rally can emerge.

Gold has been left in the shadow of silver, copper and iron ore. While silver is up by roughly 100% in 52 weeks copper has rallied approximately 90% and iron ore almost 70%. Gold meanwhile is up only about 15%. Industrial metals have been favoured by the markets while gold has been left behind. Why is that? 

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Iron ore, copper and silver are metals that lost quite a bit of their value in the early stages of the pandemic but as soon as it was clear that the US is ready to increase stimulus to unprecedented levels the industrial metals not only benefited from the upcoming economic recovery but also became bets against inflation. Dilute the value of the dollar and anything priced in the USD starts to appreciate.

XAUUSD is the only exception to this as it has been suffering from the rising US treasury yields. When the yields bottomed the attractiveness of gold as an alternative currency lost its appeal. Another reason for gold losing its lustre has been the rise of cryptocurrencies. It seems that they have attracted a lot of funds that traditionally would have been allocated to gold.

The economic calendar contains a lot of central bank talk this week. The main risk events, however, are taking place on Wednesday. French, German, UK and US PMI releases are all due on Wednesday and are likely to create volatility. And, as we know volatility equals trading opportunities. For more details on macroeconomic releases see our economic calendar

EURUSD is ranging between major support and resistance levels for the third week now. The price range (1.1835 – 1.1920) that resisted price moves higher in September to November period last year is now providing support while the 1.1952 – 1.1990 range is resisting price advances. The most recent daily trend is lower but in order for the EURUSD market to continue the trend, the 1.1835 support needs to break. Should this happen the next zone the pair is likely to move to is 1.1600 – 1.1694. On the upside, a break above the 1.1990 resistance would imply the rising trendline (currently at 1.2052) and 50-day SMA (at 1.2059) would be tested by the bulls. Open a VIP Black account with us. There are no per trade execution or monthly fees on our VIP Black accounts.

Ranging price action in EURUSD has led to the cable also trading sideways. The GBPUSD pair has been confined to the 1.3778 – 1.4015 range for 10 full trading days. We noted last week how the pair is forming a bullish triangle within this range. Today the pair has found buyers at the rising lower end of the formation but by now the pair has moved below the rising medium-term trendline. The key price levels in the cable are 1.3564, 1.3778, 1.4004, 1.4015 and 1.4237. Projections based on the width of the formation point to 61.8% retracement on the downside and the most recent high on the upside.

EURJPY opened with a 0.48% gap down this week and has since rallied to the S&R zone we highlighted in the latest Bullish & Bearish Markets video. Now that the pair is trading below the rising trendline as well as the support zone, further weakness looks likely. The next significant support zone (128.18 – 128.50) is about 80 pips away from the current market price. The next significant zone below this can be found at 127.65 – 127.83. The nearest significant resistance level above the 129.28 – 129.54 resistance zone is at 130.58.

Nikkei reached and breached our support zone and is now trading near to a rising trendline. The lower swing high at 30277 suggests the index could eventually retrace even further. The market is however now close to potential support which could create upside volatility. The BOE decision to focus on another stock index when buying equities through ETFs has caused this weakness. Therefore both the technicals and the fundamentals seem to support a medium-term bearish view on this market. This is why Nikkei pushing lower wouldn’t surprise us. The key price levels in Nikkei are 27576, 28293, 30277 and 30714.

Is a market that benefits from the rise in commodities prices. The index has been making higher swing lows and the moving averages point higher even though the last rally beyond the 6798 resistance level was rejected. If this market can create another higher swing low above the rising trendline the technicals favour the bulls. This would create pressure against the resistance level. A break above 6816 (the most recent reactionary high) would open up a way to this year’s high at 6956. Other significant price levels in FTSE are 6302 and 6460.

You may access the times and dates in the economic calendar here.

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Janne Muta
Chief Market Analyst

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