US stocks are sliding as traders focus on rising treasury yields. S&P 500 is now trading at 20-period SMA but still relatively near to the upper end of the recent 4-week range. Gold reacts higher and seems to (for a change) act as a safe haven play as stocks trade lower. GBPUSD is reacting to being overbought after a rally and the same goes with the USOIL which lost upside momentum last week. Investors focus on Powell’s testimony this week as they look for cues on whether the Fed will be likely to react to the rising Treasury yields.  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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Apart from the US treasury yields rising, the drivers for the major currency pairs as well as risky assets stay the same as last week. Traders and investors alike focus on the stimulus promised by the Biden administration but also keep an eye on the rate of vaccinations and the number of new Covid-19 cases but they will also pay attention to what the Fed chairman has to say about rising bond yields. A strong rally in Copper signals though that the market participants believe in recovery as the vaccination programs around the world gain speed.

Friday was a busy day for risk event traders. Retail Sales from the UK launched the day with quite a disappointment (-8.2% vs. -3.0% expected) but this didn’t stop dollar bears and after an initial negative reaction GBPUSD rallied again and finished the day up. Both PMI numbers for the UK (services and manufacturing) came in much better than expected which obviously helped the rally. All the other PMI releases had the same theme of services disappointing but manufacturing faring better than analysts had predicted. Services sectors are obviously still suffering from the impact of Covid-19. 

This week we have a better spread of risk events throughout the week. Today starts off with the German IFO Business Climate but then the day is void of significant releases until late in the evening European time when we get the retail sales figures from New Zealand. Tuesday’s main event is the Fed Chair Powell’s testimony and then on Wednesday the RBNZ rate decision and monetary policy statement will hopefully provide us with some action. Thursday’s main event will be the preliminary GDP release from the US and on Friday we’ll focus on the Chicago PMI. See our economic calendar for details here.

EURUSD has now three weekly low values above the rising trendline we have focused on lately. This rising support has been strengthened by the 20-week SMA that roughly coincides with the trendline and the weekly lows. Therefore, even though the pair has been somewhat slow lately it is still in an uptrend. This indicates that EURUSD will break above the resistances at 1.2168 and 1.2189. Other key levels are the swing points (supports) at 1.1952 and 1.2023. A break above 1.2189 would open a way to levels near the December high at 1.2344. A failure to stay above 1.2023 would make a test of the rising trendline likely. The trendline is currently at 1.1940, and together with the 23.6% retracement level at 1.1946 and 1.1952 support level creates a technical confluence area (a crucial support zone). Open a VIP Black account with us. There are no per trade execution or monthly fees on our VIP Black accounts.

After rallying strongly GBPUSD has reached levels where it became vulnerable to profit-taking and is now reacting lower from today’s highs. The pair was trading outside the rising trend channel and Stochastics indicate an overbought condition. The nearest supports aren’t, however, too far which decreases the risk of a strong sell-off in Cable. The key support levels for the pair are 1.3757, 1.3866 and 1.3951. All these levels coincide with the Fibonacci retracement levels (see the chart above).

For some time now rising Treasury yields have increased the opportunity cost for gold (there is no yield in gold) which has driven the price of gold lower. Now, however, gold is rallying from a key support level at 1764, a level that also coincides with the 50% Fibonacci retracement level. On Friday the price of gold was right above a key horizontal support level but also near to the bearish channel low. The 1764 support was tested successfully and now the green team is in the driving seat and the red team is retreating. The next key resistance zone is at 1810 – 1821 where we also have the 20-day SMA. By drawing the Fibonacci retracement levels from the high of the 21st January to Friday’s low the 50% retracement level also coincides with this zone. The region near the channel high (currently at 1844) is the next resistance above the 1810 – 1821 confluence zone.

The green team lost steam in the USOIL last week. We warned that after such a strong rally the market might become vulnerable to profit-taking.  This could obviously lead to a reversal if rallies are sold and supports get violated. Oil rallied from a support zone near the 23.6% retracement but is this rally going to take USOIL into new highs? With another highly correlated market, US stocks, breaking supports at the time of writing it makes sense to ask the question. Also, there really wasn’t much upside momentum last week as the weekly close was much lower than the open. This loss of momentum could turn into a sideways range and be resolved to the upside but it could also signal that the uptrend is getting old. So which way is it likely to go? As always, it is the price action that provides us with the answer. If we get a lower reactionary high (a swing point that is below las weeks high at 62.23) and then a break below the 58.56 support level, it is likely that the price of oil corrects lower. Should this happen the next key support zones are 52.76 – 54.20 (50-day SMA and the 50% retracement level) and 56.10 – 56.80 (38.2% retracement and 20-day SMA). The rising trendline support is currently at 55.04. For a more bullish scenario, we’d need to see a rally above last weeks high or alternatively have the market trading sideways above the 23.6% retracement level without breaking it.

Even though copper rallies stocks are pushed lower by the climbing treasury yields. S&P 500 CFD is trading at a support level at 3870 where the high from 26th January and the 20-day SMA coincide. If this level fails to attract buyers, the next significant area is found at 3791 – 3813 where we currently have the 50-day SMA and a cluster of Fibonacci levels. Rising trendline support is currently near the 61.8% retracement level at 3767. As long as the S&P 500 stays above this (3767) level the uptrend is still in force.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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