Primus Weekly - 15th February

Hi Everyone,

2021 has offered a plethora of market events with only 6 weeks into the year. At the onset we witnessed an inflow of capital into risk assets, signaling continuous bullish sentiment that had been prevailing for the most of 2020. That sentiment has not subsided – last week we saw a number of all-time-highs, or swing highs, once again in across of asset classes.

Bitcoin has risen to levels that seemed optimistic-to say the least- a mere year ago. The price closed at 48,680.69 on Friday, a new all-time-high, up 68% this year. Last week’s momentum was supported by Tesla’s announcement of buying U$.1.5 billion worth of Bitcoin, sparking discussions whether other corporates may choose the same. Tesla’s CEO Elon Musk has expressed his interest in crypto currencies a few times but such allocation of capital by one of S&P 500 companies can’t be ignored. Musk has also commented that Tesla is looking to accept Bitcoin as a payment method in the future. Practicalities of such step, especially price volatility and accounting standards, are to be discussed further. Also, the impact on Tesla’s balance sheet is guaranteed to offer a debate, given that cash and equivalents ought to be marked to market, causing huge swings in the value of Tesla’s assets. Another catalyst for Bitcoin and crypto in general is Bank of New York Mellon, the oldest financial institution in the U.S., announcing that their asset management division will hold crypto on the behalf of the clients. This means that large financial institutions are finally taking the step to custodise a digital asset that has been a subject of discussions from both regulatory and accounting perspective.

Investors have been positioned for economic recovery and reflation since late last year when the announcements about vaccines started coming through. Post Pfizer Monday, on 9 November, a number of commodities have taken a decisive step higher, oil leading the way. On top of oil, we have seen copper futures moving into new highs of U$ 3.827 – levels last seen nearly a decade ago in 2012. One of the obvious beneficiaries of boom in commodities and reflation is the Aussie dollar. AUDJPY, after crashing in March to a decade-low of 62.40, had recovered 2019 levels of 76.37 by 5 June last year. Price has since been climbing higher and is now near 81.94, notwithstanding the easing efforts by Royal Bank of Australia. RBA has cut interest rates to record low levels of 0.1% but this has not stopped AUDJPY testing levels last seen in 2018 December. Weekly chart reveals that resistance is near 83.0 but the bullish trend is expected to continue, supported by fundamentals and technicals. Australian economy has recovered well with unemployment rate at 5.3%, while inflation was 0.75% in 2020 – a rare exception among developed countries that struggle with anemic inflation.

Equity markets reached new all-time-highs last week with S&P 500 gaining 1.23%, Nasdaq-100 +1.50% and Russell 2000 up 2.51%. US dollar, measured by DXY, was down 0.09%. Gold lost 0.31% while oil futures rose 1.60%.

 

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
TuesdayAUDRBA Meeting Minutes
TuesdayEUREuro Area GDP – Q4 (QoQ)12.4%-0.7%
WednesdayGBPRetail Sales – January (MoM)0.6%0.5%
WednesdayUSDRetail Sales – January (MoM)-0.7%0.7%
WednesdayUSDFOMC Minutes
ThursdayEURECB Monetary Policy Meeting Accounts
ThursdayUSDInitial Jobless Claims793*775*
FridayGBPRetail Sales – January (MoM)0.3%-1.6%
FridayEUREuro Area Markit PMI Composite Preliminary – February47.848.1
FridayGBPMarkit PMI Services Preliminary – February39.540.5
FridayUSDMarkit PMI Services Preliminary – February58.357.5
FridayUSDExisting Home Sales (MoM)0.3%-1.6%

* In USD millions

Impact

  • Euro Area Markit PMI Composite

Purchasing Managers’ Index measures the sentiment for business activity in the Euro Area. This is survey based and considered as a leading indicator. Additionally, preliminary reading offers visibility on the economic activity for the ongoing month. Higher than expected print is generally bullish for EUR, while lower than expected is bearish.

  • S. and U.K. Retail Sales

Both U.S. and U.K. economy, being very consumer driven, are heavily impacted by retail sales and consumer sentiment. Up to 70% of the GDP is related to consumer spending, meaning all data points related to retail are heavily scrutinized, and have the potential to move markets. Increased retail sales are considered bullish for currency, whereas lower or below expectations read is generally considered bearish.

Market Sentiment

EURUSD is attempting to recoup the recent losses with price breaking 8-, 21- and 34-day moving average resistance levels. Price is not bullish short-term, although there is little room between moving averages, giving a weak signal. 50-day moving average is offering resistance near 1.21500, while 200-day moving average is well below the price near 1.17260. RS of 53.1 and Stochastic of 74.5 are both neutral but rising. ADX is currently 18.6, not giving a quality signal, while DMI- of 20.9 and DMI+ of 17.2 also offer little guidance about potential price movement.

Support: 1.21200
Resistance: 1.21500

The pair is attempting to establish new swing highs, trading near 1.39000 levels. Short- and long-term momentum is very clearly bullish, looking at momentum indicators. On the flipside, ADX of 11.8 does not show that much energy is left in the trend. DMI+ of 23.0 dominates DMI- of 14.3, signaling bullish trend. RSI of 68.9 is rising but still neutral. Stochastic of 89.7 is overbought and stable.

Support: 1.38300
Resistance: 1.39150

The pair has been rangebound since late December 2020, occasionally consolidating. Price is currently exhibiting bullish momentum looking at short- and long-term momentum indicators. Ascending wedge has formed which may indicate a potential break lower. RSI of 57.5 is neutral, while Stochastic of 80.3 is overbought. ADX of 13.3, DMI+ of 18.4 and DMI- of 16.8 do not give a quality signal.

Support: 0.71900
Resistance: 0.72500

XAUUSD is forced lower by 8-day moving average resistance near 1,828.00. Short- and long-term momentum indicators signal bearish momentum to continue. RSI of 42.3 and Stochastic of 49.5 are both neutral. ADX of 21.7 does not give a quality signal. DMI- of 27.8 dominates DMI+ of 17.3 and indicate bearish momentum.

Support: 1,814.00
Resistance: 1,828.00

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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