Primus Weekly - 18th January

Hi Everyone,

As we are nearing the 20th of January inauguration day in the U.S., the turmoil around U.S. Capitol building breach has not subsided. Around 20,000 National Guardsmen are expected to flood Washington D.C. next week, as per New York Times. Last week House Democrats sent a resolution to Vice President Mike Pence to invoke the 25th amendment of the Constitution which allows removing sitting President from the office. Pence rejected the resolution which resulted in House Democrats drafting impeachment articles that were approved by House with votes 232 to 197, with 10 Republicans voting in favour. Next step – Senate hearing.

While the Democrats prepare for the impeachment hearing, President-elect Joe Biden has put forward a COVID-19 relief package of US$ 1.9 trillion. Half of this package is aimed at individual, while the other half is going towards vaccine distribution, state and local government support. The package proposes US$ 1,400 dollar payments to individuals, and US$ 400 dollar unemployment benefits to be paid until September. Biden has also proposed increasing child tax credits, as well as extending student loan and mortgage forbearance. So the focus is on unemployed and those facing eviction and loan defaults. Around US$ 400 billion is intended towards vaccine distribution and administration to re-open the economy and schools. U.S. labor force has decreased by around 4 million people, compared to pre-pandemic levels, and a large chunk of it have been women who are forced to stay home as the schools have been closed. The remaining US$ 350 billion worth of stimulus is going to state and local governments that are struggling to make ends meet, even since tax revenues have plunged with less people and businesses generating tax revenue. This package will be deficit-funded with no spending cuts and tax hikes proposed, increasing U.S. budget deficit from 2020 levels of US$ 3.1 trillion to US$ 5 trillion. A whole 23% of 2020 GDP. President-elect Biden is expected to put forward another stimulus package in February that should focus on job creation, infrastructure spending with a focus on green energy – such as electric vehicle charging stations. But also, on health care and education spending. The assumption is that a tax hike would be proposed to fund this package.

U.S. jobs data is showing signs of rapid deterioration – initial jobless claims offered a nasty surprise last week when 965,000 new claims were submitted. New York Times reports that the actual number was 1.15 million initial claims, on top of 284,000 claims that were submitted under Pandemic Unemployment Assistance Program that focuses on freelancers, part-time workers, and others who are ineligible for jobless claims. After the seasonal adjustment the number reported was, however, 965,000. This trend is in line with ADP and non-farm payroll data from 2 weeks ago when around 140,000 jobs were cut in the U.S. during the month of December. The job losses came almost entirely from leisure and hospitality sector that cut 498,000 jobs, reports WSJ. Other sectors, such as retailers, factories and manufacturers added jobs. We would need to see initial claims dropping to historical levels of 200,000 to consider this recession ended. Rosenberg Research projects that estimated 7 million people will struggle with finding a new job in the near term, due to structural changes that have happened since COVID-19 crisis started. Automation and work-from-home themes mean that less people are required in the manufacturing, as well as servicing industry. Decreased need for commercial real estate and the related services also puts pressure on demand for people working in those sectors. Should be noted that 30% of work force was already underemployed before COVID-19 crisis took its toll.

The markets have taken a breather with S&P500 and Nasdaq100 respectively losing 1.48% and 2.30%. Russell200, however, posted strong gains of 1.51%. Gold was down 1.12%, while US dollar, measured as DXY, was up 70 bps.

Have a great trading week ahead!

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In The Spotlight

 

DateCurrencyEventPrevious Consensus 
MondayCNYGDP (YoY) Q44.9%6.1%
MondayCNYRetail Sales (YoY) Dec5.0%5.5%
TuesdayEURHarmonized CPI (YoY) Dec-0.7%-0.7%
TuesdayEURECB Bank Lending Survey
WednesdayCNYPBoC Interest Rate Decision3.85%
WednesdayGBPCPI (YoY) Dev0.3%0.3%
ThursdayJPYBoJ Interest Rate Decision & Monetary Policy Statement-0.1%-0.1%
ThursdayEURECB Interest Rate Decision & Monetary Policy Statement0.0%0.0%
ThursdayUSDBuilding Permits (MoM) Dec1.6 *1.6 *
ThursdayUSDInitial Jobless Claims0.97 *
FridayEURGerman Markit Composite PMI (Jan) Preliminary52.0
FridayEUREuro Area Markit Composite PMI (Jan) Preliminary49.1
FridayUSDMarkit Composite PMI (Jan) Preliminary55.3
FridayUSDExisting Home Sales (MoM) Dec6.46 *

* In USD millions

Impact

  • Chinese GDP

GDP data shows the monetary value of all the goods and services produced in China. China is the only large economy that is expected to have a positive growth in 2020. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for CNY, whilst a print below expectations tends to be negative.

  • Euro Area Composite PMI

Purchasing Managers’ Index measures the sentiment for business activity in the Euro Area. This is survey based and considered as a leading indicator. Composite index combines both services and manufacturing. Higher than expected print is generally bullish for EUR, while lower than expected is bearish.

Market Sentiment

EURUSD pair has been forced to levels last seen in December 2020 as U.S. reflation trade seems to have emerged strong. 8-day Moving Average has crossed below 21-day Moving Average, and seems to offer resistance near 1.21484. The price is testing lower Bollinger Band support, while overlaps with 50-day Moving Average, near 1.20690. Medium- and long-term bullish momentum is still at play as the price is trading around 52 bps above 200-day Moving Average. RSI of 42.1 is stable, while Slow Stochastic of 12.3 signals overbought levels. ADX sits near 22.0 which gives a weak signal. DMI+ of 14.0 and DMI- of 20.4 also offer no indication about prevailing trend.

Support: 1.20690

Resistance: 1.21484

The pair continues its march higher to levels last seen in April 2016. Strong bullish momentum is evident from stacked Moving Averages ( 8 > 21 > 34 > 50 > 100 > 200). Price has broken 8-period MA, and found support near 21-day MA level of 1.35350. RSI of 51.2 is neutral while Slow Stochastic of 73.5 is also neutral. ADX is currently 11.1, DMI+ 20.7 and DMI- 19.9 – all giving a weak signal.

Support: 1.35350

Resistance: 1.36210

USDJPY pair has recovered to levels last seen in December 2020. The price has broken a few resistance levels and is currently stopped by 50-day Moving Average near 103.95. 8-day Moving Average has crossed above 21-day Moving Average, indicating that short-term bearish trend has weakened, while medium- and long-term bearishness is still present. RSI of 51.0 and Stochastic of 67.6 are both neutral. ADX is 13.2 giving no signal. The same goes for DMI+ of 19.2 and DMI- of 15.8

Support: 103.68

Resistance: 103.95

  • XAUUSD

XAUUSD has broken 200-day Moving Average support and is trending lower. 200-day MA seems to be offering resistance now near 1,842.00, signaling bearish long-term momentum. Short- and medium-term momentum indicators are also bearish as 8-day Moving Average has crossed below 21-, 34-, 50 and 100-day MA. Lower Bollinger Band offers support near 1,814.00. RSI of 41.7 is neutral but Slow Stochastic of 18.2 is overbought. ADX of 20.9 is not giving a quality signal but DMI- of 31.2 dominates DMI+ of 15.5, indicating a bearish momentum.

Support: 1,814.00

Resistance: 1,842.00

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.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

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Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

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