Investors are careful and pairing the risks down ahead of the ECB meeting and US CPI release on Thursday. Yesterday was a quiet day in terms of macroeconomic data but it didn’t stop the markets from having some intraday swings that provided traders with profit potential. EURUSD rallied almost to our resistance area at 1.2205 – 1.2216 (the 61.8% Fibonacci retracement level and the bear channel high) before the red team took over and started to push the pair lower. This helped the price of gold to climb higher and supported the AUD and NZD against the greenback. Traders are now looking ahead to the US CPI data and the ECB meeting on Thursday. Dovish ECB policymakers are not likely to cut their bond-buying program under Pandemic Emergency Purchase Programme (PEPP).  By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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The 10-yr US Treasury bond yields finished the day at 1.569% after falling to 1.560% from 1.628% in Friday’s trading. Russell 2000 (+1.43%) was the leader among the US stock market indices while NASDAQ Composite (+0.49%) managed to climb higher by only a modest half a per cent. S&P 500 (-0.08%) and Dow Jones Industrial Average (-0.36%) lost ground as the rates stayed at low levels and money poured into technology stocks that tend to benefit from a low rates environment. 

The real estate (+0.94%) and the communication services (+0.52%) sectors gained the most in yesterday’s trading. The healthcare (+0.36%) and the utilities (+0.18%) finished also in black while the materials (-1.22%) and the industrial sectors (-0.69%) saw the heaviest losses. The fact that cyclical sectors such as the materials, the industrial and the financial sectors were amongst the biggest losers suggests that investors are pairing the risks down ahead of the US CPI release on Thursday. Today’s main events are the releases of ZEW Economic Sentiment indicators for the euro area and Germany.

Yesterday we wrote about Biogen shares (BIIB, +38.34%) (here) that had rallied almost five per cent as the US regulators were expected to make a decision on the company’s Alzheimer’s disease drug. As the readers can guess from the above chart the FDA approved the use of the drug yesterday. The price tag of $56K (the annual cost of a maintenance dose of the treatment) has forced the company CEO to defend the pricing of the new drug. Investors on the other hand love the stock (and presumably the pricing policy too). The stock traded to $468 intraday before profit-taking started and the stock settled at $395.85. 

The stock of Fiserv Inc. (FISV, -3.30%), a technology company serving the financial industry, kept on falling on the back of the news that insiders continue to sell significant quantities of the stock.  According to recent SEC filings, two insiders (KKR Fund Holdings Lp and New Omaha Holdings Lp, both 10% owners) sold 46,000,000 shares in the company (market value of the sales equalled approximately $5,414,200,000. The stock is down -9.74% over the last three months.

The loss of momentum near the all-time highs in the index indicates weakness and could lead to a minor correction lower. This wouldn’t be a surprise ahead of the CPI number release. However, whether the market corrects lower or not it’s good to know where the key price levels are so that we are prepared to trade should the CPI volatility drive the index to these levels. The nearest key support zone is at 4157 – 4178 (both 20 and 50-period SMAs and the 38.2% Fibonacci retracement level). The nearest resistances are 4233 and 4244. With the CPI release, just two days away and the resistance levels right above the current weakish price action traders should engage the long side very cautiously if at all. This is likely to be only a short-term weakness and we believe the US stock market has more upside potential in both the medium and long term.

Nasdaq rallied higher yesterday but in today’s trading Nasdaq futures have been retracing lower. If today’s candle closes lower, then we have more evidence of weakness in the US stock markets. The key support and resistance levels for Nasdaq are 13463 – 13521 (a recent reactionary low,  the 20-day SMA and the 38.2% Fibonacci retracement level) and 13644 (the 50-day SMA and the 23.6% Fibonacci retracement level). The nearest significant resistance level is the ATH peak at 14076.

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Macro Drivers for the USD 
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The FEDThe Fed has on several occasions repeated its commitment to ultra-accommodative monetary policy. The rates are likely to stay near zero but now some Fed officials have said that the Fed should start considering potentially tapering their asset purchases.
StimulusThe US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration has indicated it will seek to deliver another two trillion dollars in infrastructure spending.
YieldsAfter trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways. All in all, the yields and interest rates are extremely low on both nominal and real basis.
PayrollsThe latest miss in payrolls was the biggest in the recorded history. Analysts expected to see one million new jobs in April but the actual number came in at 266K (down from 770K in March).
InflationAs per CPI inflation is running at a 5% annual pace over the last 6 months, while PPI shows annual inflation pace at 7.4% over the same period.

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 Market News & Facts 

  • China state media to Australia: Diversify your iron ore exports away from China
  • Australia NAB business confidence for May 20 (26 previous) 
  • Australia NAB business conditions for May 37 (32 previous)
  • US report: Virus leak from a Chinese lab in Wuhan is plausible
  • Yellen will persist with Biden’s $4tr spending plan even if it increases inflation
  • The head of Rosneft: the world will face acute oil shortage in the long-term
  •  President of El Salvador to make Bitcoin a legal tender
  • Tesla Tesla cancels its Model S Plaid Plus
  • Flexible QE expected from the RBA
  • The first signs of tapering as the Fed starts to exits corporate bond positions
  • Lagarde says ECB is committed to preserving favourable financing conditions
  • Mora, EU chief coordinator of Iran talks optimistic about an agreement next week
  • Australian May Construction PMI 58.3 (59.1 previous)
  • Australian Q1 GDP +1.8% q/q (+1.5% expected)
  • RBA’s Lowe taper talk not pushing the AUDUSD higher
  • Ramsden at BOE suggests demand could get ahead of supply
  • UK Nationwide m/m change in house prices +1.8% (+0.8% expected)
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The Next Main Risk Events

  • EUR – ZEW Economic Sentiment
  • EUR – German ZEW Economic Sentiment
  • AUD – RBA Assist Gov Kent Speaks
  • CAD – BOC Rate Statement
  • CAD – Overnight Rate
  • USD – Crude oil inventories
  • USD – 10-yr bond auction

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here. For more analysis and commentary, visit our YouTube channel where you can find market commentary videos to support your learning and growth as a trader.

DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analyzes and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated. 

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